Whether Harrisburg, ‘too big to fail’ banks, or Greece, two principles should prevail:
1) Creditors should suffer when they make bad loans;
2) Fiscal austerity is disastrous during sharp recessions
Conservatives simply turn a blind eye to twentieth century economics. Why? Because they usually are part of or live off the money class, mindlessly voicing Wall Street Journal nutty editorial cant.
The public should not be denuded because bonds for faulty programs (often conjured up and spearheaded by bond brokers) were foolishly purchased by investors. The pain needs to be shared. Otherwise, what constraint exists for the sale of public securities? To protect the bond debt guarantor, Gov. Tom Corbett sold Harrisburg down the Susquehanna by blocking bankruptcy court protection, hamstringing the city for at least a decade to come. That same investor elsewhere, where facing possible bankruptcy by the municipalities, agreed to significant reduction of debt.
As John Maynard Keynes taught us in the 1930’s, fiscal austerity during bad times simply runs up costs and prevents creation of jobs that will lead the economy to recovery. President Barack Obama’s entreaties for fiscal stimulus went ignored. Conservative ideologues and toddies turned their back on over 97% of prominent economists.
Conservatives stress baseless concerns about the amount of public debt. During the latter years of the Clinton Administration and before George W. Bush, a major concern was the rapid paying off of the national debt because without national debt there cannot be currency. (Originally currency was proof that the government owed the holder gold, at one time stored in Fort Knox.)
Keynes prescribed during bad times you stimulate the economy and during good times you tax more and pay off the debt. “W” did the opposite. And we are still suffering from it.
Below we see how austerity (as opposed to desirable reforms) has played out in Greece: Little progress, if any, but incredible public hardship.
NEW YORK TIMES: …The ballot will pit Mr. Samaras’s conservative New Democracy party against the left-wing party Syriza led by Alexis Tsipras, which has emerged as the front-runner in opinion surveys. Syriza has drawn support by promising to cancel austerity programs and demand the cancellation of debt…
Syriza has said it wants to renegotiate two bailouts worth 240 billion euros, or about $292 billion, from Greece’s so-called troika of lenders — the European Commission, the European Central Bank and the International Monetary Fund — and to persuade creditors to write off some of the country’s crippling debts.
Mr. Samaras’s governing coalition has, with some reluctance, pursued deeply unpopular austerity policies demanded by lenders and backed particularly by Germany. But early signs of economic improvement have not translated into tangible benefits for average Greeks laboring under a surge in joblessness and widespread hardship… (more)
