Nel's New Day

July 6, 2015

GOP Wants U.S. to Have Problems of Greece

Filed under: Budget,Uncategorized — trp2011 @ 9:06 PM
Tags: , ,

Greece’s vote of 61 to 39 percent against austerity measures this past week leaves the country in limbo as its creditors are wondering what to do about the country. Greek banks are still closed, the economy is in chaos, and a new bailout agreement may cost them more. But evidence shows that the Greeks are right about austerity, and more of it will hurt their economy.


Five years ago, the International Monetary Fund (IMF) told Greece that the austerity measures would restore the market’s confidence in its debt, help the country’s economy rebound in the medium term, and have a negative, but survivable, impact on output and unemployment. It didn’t. Higher recession and exceptionally high unemployment in Greece have been accompanied by a lack of market confidence and the loss of 30 percent in banking deposits. The economy shrank by 17 percent instead of 5.5 percent, and the unemployment rose to 25 percent instead of 15 percent. In the past seven years, the economy shrank 25 percent, and a report stated that “productivity gains proved elusive.” At the same time, “public debt remained too high and eventually had to be restructured.”

The failed estimates to solve Greek’s problems came from a flawed paper by economists Carmen Reinhart and Kenneth Rogoff who tried to prove that economic growth slows down when countries’ public debt reaches 90 percent of their GDP. The authors had excluded times where countries had both high debt and average growth, used debatable methods to weight countries, and made a coding error that excluded even more countries with high debt and steady growth. Fixing the errors showed that Reinhart and Rogoff were wrong, and a reanalysis revealed that the opposite result is true—that slow growth leads to high debt. When austerity measures hurt the economy, they damage, more than help, debt levels.

Greece’s high debt levels have historical precedent as does the concept that Greeks don’t have to immediately repay debts. Authority Thomas Piketty said, “Great Britain, Germany, and France were all once in the situation of today’s Greece, and in fact had been far more indebted.” When countries such as Great Britain used austerity to deal with debts, England took over 100 years to do so, costing the country 2 to 3 percent of its economy. Germany, the country leading the call for austerity in Greece, “has never repaid its external debt,” according to Piketty. Although German debt was over 200 percent of its GDP after World War II, it shrank to 20 percent ten years later because 60 percent of its foreign debts were cancelled in 1953 along with an internal debt restructuring.

Piketty recommends a combination of debt relief, inflation, and a tax on private wealth. He said, “Europe was founded on debt forgiveness and investment in the future. Not on the idea of endless penance.”

Austerity means less spending. Less spending means less demand. Less demand means less money to hire workers, pay contractors, or to pay for pensions. Increased taxes for the poor and middle class has the same problem: higher taxes for consumers means less money to spend. Greece massively cut spending and raised taxes, but the country still has a budget deficit because unemployed people don’t pay taxes and businesses losing money don’t pay taxes. Germans and others in northern Europe complain about giving money to “lazy” Greeks and other southern Europeans, but the economic policies of the northern Europeans run deficits in southern Europe. If Germany and other wealthier countries boosted poor countries through a greater expansion of fiscal policy, the latter wouldn’t need handouts.

People in the United States need to note the Greek situation because the GOP is trying to do the same thing to the U.S. that the European Union did to Greece. After George W. Bush caused the trajectory toward a large deficit with his tax cuts for the wealthy, two wars, and ignorance regarding the housing bubble, the GOP decided that austerity was the only cure for the problem. A conservative, Gene Steuerle, set out to show how wrong the government has been to create programs such as Social Security, Medicare, and Medicaid and proved the opposite. It’s the same situation as in Greece: the more money people have to spend, the greater the economy. Giving wealthy people tax cuts does no good because they shelter or spend it overseas, giving no support to the U.S. economy. For example, Walmart has 78 shell companies in 15 tax havens with $76 billion in just Luxembourg and the Netherlands.

What helps the economy is investing in the future through government spending that benefits large parts of the population. All the countries that reduced their deficit the most since 2010 have the worst employment performance.

Another GOP-caused problem is the cost for health care. The United States pays over twice as much per person in this area as the other wealthy countries but gets nothing extra in terms of outcomes. The U.S. doesn’t get better health care than Germany, Canada, or France; it just pays much more. The U.S. pays twice as much for doctors, drugs, medical equipment, etc. while throwing money at insurance companies.

A serious GOP problem is its obsession with the “free market,” the belief that all innovation and growth come from the private sector. Nations relying on private industry have become stagnant because private companies rehash old ideas and stash their money in foreign tax havens. The iPhone was revolutionary, but its touch screen, GPS, and processor were funded by some country’s government. The iPhone 5 just uses different materials than the iPhone 4 does. Most of this country’s R&D funding goes to refining existing technologies. Private companies care only for short-term immediate profits, but governments aren’t forced into this box. If the U.S. had invested in R&D instead of Sollyndra or other similar companies, technologies in improved solar could have been innovative. That’s the real competition from China that the U.S. fears.

Two years ago, a report showed that over 2 million people were unemployed in the country almost four years after the end of the 2008 recession because of austerity measures. During that time, federal, state, and local governments cut about 500,000 jobs compared to the average of 1.7 million people hired in every other recession since 1970. The GOP’s tight fiscal policy kept the economy from growing.

Paul Krugman wrote that “austerity policies serve the interests of wealthy creditors.” Since World War II, only three presidents before President Obama left office with a larger debt ratio than when they came in—Ronald Reagan and the two George Bushes, the three with hard-line conservative governments. Those are the ones “deprive the government of the revenue it needs to pay for popular programs.”

If the U.S. emulates Greece, the country can expect these outcomes. Austerity kills and injures:

  • Stillbirths rose by 21 percent between 2008 and 2011 because of scaled down prenatal health services for pregnant women while infant mortality surged by 43 percent between 2008 and 2010.
  • Deaths by suicide increased by 45 percent between 2007 and 2011 with the general deterioration of life due to austerity from unemployment, poverty, reduction of the minimum wage, and lack of disposable income.
  • New HIV infections among injecting drug users rose from 15 in 2009 to 484 in 2012 while tuberculosis more than doubled between 2012 and 2013 after lack or prevention and treatment care.
  • Malaria re-emerged for the first time in 40 years after significant cuts in municipal budgets reduced mosquito-spraying programs.
  • The use of mental health services increased by 120 percent although public funding for mental health dropped by 20 percent between 2010 and 2011 and by an extra 55 percent between 2011 and 2012.

Austerity leads to neo-facism. The greater the income inequality, the larger the response from right-wing, neo-facist parties. Just as Europeans failed to develop a shared political union, the 50 states in this country are splitting farther apart. The culture of austerity exacerbates social stresses and leads to populist challenges. If Social Security and Medicare were to disappear, as many far-right legislators in the United States hope, rivalries would grow and white supremacists would gain greater and greater power in the ensuing increase of poverty.

Conservatives in the United States use austerity for their own means. When they wanted war, they followed Vice-President Dick Cheney’s statement, “Reagan proved deficits don’t matter.” Their purpose is to gain power and white entitlement by advancing big business through destroying worker control and exerting control over minorities through ridding themselves of the “welfare state.” Reducing spending on the government causes a greater percentage of blacks to lose their jobs than whites. Increasing unemployment puts a larger percentage of blacks without work than whites.

While the United States struggled with slow economy because of the GOP austerity measures, the austere policies in some GOP-controlled states, for example Kansas and Wisconsin, have destroyed the people. Louisiana State University is considering bankruptcy. Kansas’s austerity program drove the state so far into the ground that it shut down the website for the state economic development agency. That’s where the GOP wants the United States to go.

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