Death of a Fairy Tale

This was the month the confidence fairy died. For the past two years most policy makers in Europe and many politicians and pundits in America have been in thrall to a destructive economic doctrine. According to this doctrine, the governments should respond to a severely depressed economy not the way textbooks say they should, by spending more to offset falling private demand, but with fiscal austerity, slashing spending in an effort to balance their budgets. (Paul Krugman – NYTimes – 27/04/2012)

Critics warned from the beginning that austerity in face of the depression would make depression worse. But the “austerians” insisted reverse would happen. Why??? Confidence! “Confidence-inspiring policies will foster, not hamper economic recovery”, declared Jean-Claude Trichet, former president of the European Central Bank, a claim echoed by Republicans in Congress here. Or as I put it way back when, the idea was that the confidence fairy would come in and reward policy makers for their fiscal virtue. The good news is many influential people are finally admitting that the confidence fairy was a myth. The bad news is that despite this admission there seems to be little prospect of a near-term course change either in Europe or here in America, where we never fully embraced the doctrine, but have, nonetheless, had de facto austerity in the form of huge spending and employment cuts at state and local level. About that doctrine: appeals to wonders of confidence are something Herbert Hoover would have found completely familiar, and faith in the confidence fairy has worked out about as well for modern Europe as it did for Hoover’s America. All around Europe’s periphery, from Spain to Latvia, austerity policies have produced Depression-level slumps and Depression-level unemployment; the confidence fairy is nowhere to be seen, not even in Britain, whose turn to austerity 2 years ago was greeted with loud hosannas by policy elites on both sides of the Atlantic. None of this should come as news, since failure of austerity policies to deliver as promised has long been obvious. Yet European leaders spent years in denial, insisting that their policies would start working any day now, and celebrating supposed triumphs on the flimsiest of evidence. Notably, the long-suffering (literally) Irish have been hailed as a success story not once but twice, in early 2010 and again in the fall of 2011. Each time the supposed success turned out to be a mirage; three years into its austerity program, Ireland has yet to show any sign of real recovery from a slump that has driven the unemployment rate to almost 15%. However, something has changed in the past few weeks. Several events, collapse of Dutch government over proposed austerity measures, the strong showing of the vaguely anti-austerity François Hollande in the first round of France’s presidential election, and an economic report showing that Britain is doing worse in the current slump than it did in 1930s, seem to have finally broken through the wall of denial. Everyone is admitting that austerity isn’t working.

The question now is what they’re going to do about it. And the answer, I fear, is: not much. For one thing, while the austerians seem to have given up on hope, they haven’t given up on fear, that is, on the claim that if we don’t slash spending, even in a depressed economy, we’ll turn into Greece, with sky-high borrowing costs. Now, claims that only austerity can pacify bond markets have proved every bit as wrong as claims that the confidence fairy will bring prosperity. Almost 3 years have passed since Wall Street Journal breathlessly warned that the attack of the bond vigilantes on US debt had begun; not only have borrowing costs remained low, they’ve actually fallen by half. Japan has faced dire warnings about its debt for more than a decade; as of this week, it could borrow long term at an interest rate of less than 1%. And serious analysts now argue that fiscal austerity in a depressed economy is probably self-defeating: by shrinking the economy and hurting long-term revenue, austerity probably makes debt outlook worse rather than better. But while the confidence fairy appears to be well and truly buried, deficit scare stories remain popular. Indeed, defenders of British policies dismiss any call for a rethinking of these policies, despite their evident failure to deliver, on the grounds that any relaxation of austerity would cause borrowing costs to soar. We’re now living in a world of zombie economic policies, policies that should have been killed by the evidence that all of their premises are wrong, but which keep shambling along nonetheless. And it’s anyone’s guess when this reign of error will end. 

Acerca de ignaciocovelo
Consultor Internacional

3 Responses to Death of a Fairy Tale

  1. Professor Uziel Nogueira says: Death of a Fairy Tale – economic austerity- proclaims Prof Krugman in his piece. Q: why does the US and Europa are not listening to his academic advice? Let’s start with the US, origin of the crisis. The economic debacle of 2008 is structurally different from the 1930s. This time, BEFORE the crisis exploded, ALL levels of US government were highly indebted as well households and enterprises. The bailout of private banks only exacerbated the public debt because bad loans were bought by the FED. The reason Mr. Bernanke resists another round of money printing spree to finance additional public expenditure is simple. As a professor of economic history, he abhors the idea that his tenure at the FED becomes known as the COLLAPSE of the dollar. The FED/Treasury know that a collapse of the dollar makes the financing of the budget and balance of payments deficits a mission impossible. The end of US as a superpower. The euro zone crisis is related to a common currency going havoc among its 17 member countries. Highly indebted countries in the periphery of the euro zone, Greece, Portugal, Spain and Italy, cannot afford a strong common currency, the Euro. Given the rules of the integration process –that did not anticipate huge public debts – the highly indebted countries have two unpleasant choices. Take economic structural reforms to become more competitive or leave the euro zone. Either outcome is the end of the welfare state.

    http://www.nytimes.com/2012/04/27/opinion/krugman-death-of-a-fairy-tale.html?

  2. El dilema entre austeridad y crecimiento, que durante tanto tiempo ha dejado en la UE un clarísimo ganador con los ajustes decretados por Alemania, se ha convertido en una extraña disyuntiva entre crecimiento y crecimiento. El presidente de la Comisión Europea, José Manuel Barroso, y el primer ministro italiano, el tecnócrata Mario Monti, han lanzado esta mañana un comunicado conjunto que funciona a modo de manifiesto de lo que entiende, a día de hoy, Europa por crecimiento: “La reactivación del crecimiento debe venir por la vía de la mejora de la productividad y no a través de incrementar los niveles de deuda”.

    Europa está de acuerdo en volver a poner el crecimiento como prioridad política —sin dejar de lado los recortes, por supuesto—, pero no está muy claro qué significa esa palabra. A un lado, el candidato socialista a las presidenciales en Francia, François Hollande, reclama fondos estructurales, bonos europeos para poner en marcha infraestructuras y una tasa financiera destinada a apoyar proyectos que creen empleo (en otras palabras: lo más parecido a un proyecto socialdemócrata de un presidenciable de uno de los grandes países del euro en muchos, muchos años). Al otro, Berlín, Bruselas, Madrid y Roma, que han empezado a hablar abiertamente de crecimiento pero sobre la base de reformas estructurales y poco más. Barroso y Monti, miembros de la misma familia política, coinciden en la necesidad “de seguir desarrollando el mercado único, el activo más valioso para la promoción del crecimiento y el empleo a nivel europeo, y para fortalecer la aplicación de sus normas, en particular en sectores como el digital, la energía y los servicios”. Traducción libre: políticas de oferta. Nada de experimentos neokeynesianos, a los que se abonó la Unión —por consejo de la Comisión y el Fondo Monetario Internacional— tras el estallido de la crisis financiera para evitar repetir la Gran Depresión, pero que trajeron elevados niveles de deuda pública y un castigo en los mercados que ha desestabilizado el club del euro.

    El presidente del Consejo Europeo, Herman Van Rompuy, ha mandado una carta a los líderes europeos tras anunciar la convocatoria de una cumbre informal sobre crecimiento, pero en la misiva insiste únicamente en ese tipo de medidas.Sin embargo, algo ha cambiado en Europa. Frente a una canciller alemana, Angela Merkel, que sostiene que el ajuste fiscal es “innegociable” y que entiende que el crecimiento “ya es el segundo pilar” de la política europea, Barroso y Monti aportaron una novedad en su comunicado. Con el habitual lenguaje imposible de Bruselas, dejaron una frase que abre una puerta: “La consolidación fiscal debe llevarse a cabo junto a inversiones dirigidas a mejorar la competitividad al tiempo que contribuyen a la creciente demanda en el corto plazo”. Traducción bastarda: la Unión se prepara para algún tipo de estímulo, vía inversiones. No hay pistas aun de por dónde pueden ir los tiros. Pero es un cambio importante.

    http://economia.elpais.com/economia/2012/04/27/actualidad/1335523173_645552.html

  3. (Autoria) Comentario del Prof. Uziel Nogueira: Según la portada del País, Barroso y Monti apuestan por el crecimiento “sin elevar la deuda”. Sin dudas, vivimos en un mundo al revés. En un pasado no muy distante, ‘pensamiento mágico’ era la expresión favorita de la élite europea para referirse a los planes económicos en boga en los países latinoamericanos. Por supuesto, Domingo Cavallo y el trueque de sacar de la galera 1 peso =1 dolar llevo el premio máximo en los 90. Ahora bien, en 2012 la dupla Barroso e Monti es seria candidata para quedarse con la versión europea del trofeo pensamiento mágico. Los dos lideres mayores defienden crecimiento económico SIN elevar la deuda publica. Esta hazaña requiere de la presencia del inefable de Domingo Cavallo, ahora profesor en Harvard, y su equipe de brillantes muchachos porteños entrenados en Estados Unidos. Sin embargo, un (posible) resultado exitoso depende fundamentalmente de una esencial condición: muchísima fe y los buenos servicios divinos de Bento XVI en Roma.

    http://economia.elpais.com/economia/2012/04/27/actualidad/1335523173_645552.html

Responder

Introduce tus datos o haz clic en un icono para iniciar sesión:

Logo de WordPress.com

Estás comentando usando tu cuenta de WordPress.com. Cerrar sesión / Cambiar )

Imagen de Twitter

Estás comentando usando tu cuenta de Twitter. Cerrar sesión / Cambiar )

Foto de Facebook

Estás comentando usando tu cuenta de Facebook. Cerrar sesión / Cambiar )

Google+ photo

Estás comentando usando tu cuenta de Google+. Cerrar sesión / Cambiar )

Conectando a %s

A %d blogueros les gusta esto: