William K. Black
June 2, 2018 Bloomington, MN
(Third in a series of articles on Italy, Austerity, and the euro)
The New York Times’ editorial board published a May 29, 2018 editorial about Italy’s ongoing political and financial issues that praised austerity in Italy. The board cheered the anti-democratic appointment of “Carlo Cottarelli, a solidly pro-Europe and pro-austerity economist and former official of the International Monetary Fund, to form a nonelected government.” In particular, the board expressed its horror that Italy (which continues to have unemployment levels one expects to find in a severe recession) would have adopted “grandiose spending plans” (fiscal stimulus) if the Italian establishment had not sought to block the results of the recent Italian election.
Paul Krugman has written extensively in the NYT about why austerity is a horrific response to a Great Recession. On February 24, 2013, he wrote specifically about the disaster that austerity caused in Italy. The context was yet another effort by neoliberal forces to ignore the wishes of Italian voters in order to continue to inflict austerity on Italians. The specific context was the austerians’ efforts to convince Italians to support Prime Minister Mario Monti’s austerity policies. Monti, unsurprisingly, was a former senior Goldman Sachs adviser. Krugman was outraged.
For Mr. Monti was, in effect, the proconsul installed by Germany to enforce fiscal austerity on an already ailing economy; willingness to pursue austerity without limit is what defines respectability in European policy circles. This would be fine if austerity policies actually worked — but they don’t. And far from seeming either mature or realistic, the advocates of austerity are sounding increasingly petulant and delusional.
Consider how things were supposed to be working at this point. When Europe began its infatuation with austerity, top officials dismissed concerns that slashing spending and raising taxes in depressed economies might deepen their depressions. On the contrary, they insisted, such policies would actually boost economies by inspiring confidence.
But the confidence fairy was a no-show. Nations imposing harsh austerity suffered deep economic downturns; the harsher the austerity, the deeper the downturn. Indeed, this relationship has been so strong that the International Monetary Fund, in a striking mea culpa, admitted that it had underestimated the damage austerity would inflict.
Meanwhile, austerity hasn’t even achieved the minimal goal of reducing debt burdens. Instead, countries pursuing harsh austerity have seen the ratio of debt to G.D.P. rise, because the shrinkage in their economies has outpaced any reduction in the rate of borrowing. And because austerity policies haven’t been offset by expansionary policies elsewhere, the European economy as a whole — which never had much of a recovery from the slump of 2008-9 — is back in recession, with unemployment marching ever higher.
Krugman, no fan of Italy’s Five Star Movement or the anti-immigrant League, made the critical analytical point. Krugman perceptively warned that austerity’s catastrophic harm was causing Europeans to flock to ‘populist’ parties.
Italy, a nation that for all its dysfunction has in fact dutifully imposed substantial austerity — and seen its economy shrink rapidly as a result.
[R]espectable Europeans won’t admit that the policies they have imposed on debtors are a disastrous failure. If that doesn’t change, the Italian election will be just a foretaste of the dangerous radicalization to come.
The day before the board published its ode to Italian austerity, the NYT published Peter S. Goodman’s wonderful long-form article (BRITAIN’S BIG SQUEEZE: In Britain, Austerity Is Changing Everything). Goodman’s piece adds great detail to Krugman’s warnings and analysis.
I do not expect the New York Times’ editorial board to have identical views on economic policies like austerity to the paper’s journalists (Goodman) or opinion writers (Paul Krugman). The board precedes their editorials with this explanation:
The editorial board represents the opinions of the board, its editor and the publisher. It is separate from the newsroom and the Op-Ed section.
It is fine for writers from the same paper to disagree on their economic policy recommendations. What is unacceptable is for the writers to ignore their colleagues’ policy arguments. If the editorial board thinks Krugman’s criticism of the economic illiteracy of austerity is wrong they owe it to their readers to explain why and start a substantive debate. I would prefer it if the editorial board read its own newspaper and explained the basis for its views, particularly when the paper’s experts hold the opposite view and have explained at length their reasoning.
I would also prefer it if the board read its own editorials. On April 14, 2013, shortly after Krugman’s column explaining the economic and political harms austerity was causing to Italians, the board published “Europe’s Bitter Medicine” – decrying austerity in Italy. The board did not cite Krugman’s recent column, but it adopted both of his key points. First, austerity was economically illiterate and harmful.
For more than two years, European leaders have pushed a cocktail of fiscal austerity and structural reforms on troubled countries like Portugal, Spain and Italy, promising that it will be the tonic to cure their economic and financial ailments. All the evidence shows that this bitter medicine is killing the patient.
(Austerity is to economic “medicine” as bleeding a patient is to medicine.)
Second, the board warned that austerity’s grave injury was the primary reason for the Five Star Movement’s growing popularity in Italy.
[F]rustrated Italians cast such a large vote for an anti-establishment movement that the country still does not have a new government more than a month after its national elections.
The biggest political beneficiaries have been groups like the Five Star Movement in Italy, which has refused to support any political party in forming a government and has called for a referendum on the country’s use of the euro. The real danger for Europe is that such movements will increase and voters and leaders in struggling countries will see less and less value in sticking with the euro.
(The euro – not Italy leaving the euro – is “the real danger for Europe.” The editorial board is reflexively wrong when it comes to economics.)
I would not object to the editorial board changing its mind on austerity because it now believes it to be desirable – as long as it explains what has caused the change in views and openly debates the issue. I do not believe, however, that such a change occurred. I believe that the board contradicts itself because it has never understood the economics of austerity and the euro. It is instinctively neoliberal on the subject of austerity.