Three Stories Will Illustrate The Rejection Of Reality

 

Let’s start with this Guardian article……

Austerity is undermining Europe’s grand vision

……The so-called “rescue” packages for the troubled economies of Europe have involved insistence on draconian cuts in public services and living standards. The hardship and inequality of the process have frayed tempers in austerity-hit countries and generated resistance – and partial non-compliance – which in turn have irritated the leaders of countries offering the “rescue”. …(now reflected in such rhetoric as “lazy Greeks” or “domineering Germans,” depending on where you live).

… Two issues need to be separated out: one, the counterproductive nature of the policy of austerity imposed on (or, as in Britain, chosen voluntarily by) governments; and two, a reasoned suspicion about the lack of viability of the shared euro.

The moral appeal of austerity is deceptively high (“if it hurts, it must be doing some good”), but its economic ineffectiveness has been clear at least since Keynes’s debunking of “the remedy of austerity” in the Great Depression ……..

This is clearly delusional bantering.  First of all, we need to revue what happened.  The Greeks (while I don’t wish to single them out, but, they’re a great representation of what happened) during times of good fortune decided to spend and create rules which made many financial guarantees to their people.  But, economics is never static.  When the economy took a turn for the worse, these guarantees resulted in so much deficit spending that the Greek government could not make the necessary interest payments.  They could not meet their obligations.  So, they turned to others for help.  The Eurozone responded and lent them the money necessary to continue as a government.   But, the money was conditional that they make themselves solvent.  Yes, entirely unreasonable, but, that’s what happened.  Now, this writer believes this has harmed the economy.  But, let’s take a closer look at what this author calls “austerity“.  He brings up Britain’s austerity measures.  So, let’s look…..

Source here.

Ahh, so we see what austerity is!  It’s the continuation of deficit spending!  Now, Britain is nowhere near where Greece or even the U.S. is in deficit spending, but, one would notice a troubling rise in interest payments.  In the end there are fiscal and economic realities which no amount of government spending can overcome.  Consider what would have happened to Greece if there was no Eurozone to bail them out.  It would have, and probably should have defaulted and collapsed the government, and they would have started anew.  Instead, they continued to beg for money.  Apparently, the author believes the rest of Europe should have sent money and told the Greeks to spend even more as a solution to this difficulty.  What a fantastic bit of logic.  And, this brings me to my next article from the Huffington Post ……..

Greek Finance Minister: Country Falling Short On Bailout Promises

Greece is falling short of some of the commitments it has made in return for billions of euros of rescue money, the country’s new finance minister admitted Thursday after meeting representatives of the country’s financial rescuers for the first time.

This is the “the hardship and inequality ” the author railed against.  It seems the draconian measures really haven’t taken place.  Greece has received (EURO)240 billion in bailout money, and they haven’t done the things necessary to become solvent.  Even Sweden recognizes this. 

Sweden’s Finance Minister Anders Borg said that unless Greece changes its ways, the country is headed for bankruptcy.  “The way the situation has been handled so far – and with the high debt levels they have – it can’t be ruled out that it will all finally end in a bankruptcy.”  He also said the country might have to consider exiting the eurozone – which his own country is not a member of.  “I’m more unsure about that, but it is obvious that if you have such a high debt, you only have grim alternatives to choose between,” he said.

For people who engage in economic debates where Sweden is often brought up, you may wish to bookmark this.  But, as Sweden’s Finance Minister said, there are grim choices.  There are 3 ultimate results for Greece.  One, is they can make the necessary changes and become solvent.  Two, is they can default on the debt and start anew.  Or, three, they can continue in this manner, and have the rest of Europe continue to finance their largess.  The idea that the 3rd would operate in perpetuity is ludicrous.  And, this brings me to my last story about denying reality.  Again, from HuffPo……

Stockton Bankruptcy The Result Of 15-Year Spending Binge

The man in charge of the biggest U.S. city ever to file for bankruptcy is clear about the root of the crisis.  It was a decision that gave firefighters full healthcare in retirement starting on Jan. 1, 1996, s aid Bob Deis, the city manager of Stockton, California. 

…. The change allowed police officers to retire at 50 with pensions based on 3 percent of final pay for each year in service, up from 2 percent before. 

Once the insurance was given to the firefighters, they gave it to all other city workers.  They were retiring people at near %100 of their salary.  Remember, economies never remain the same, we’ll always have ups and downs.  You just want more ups than downs. 

…. Warning signs grew that retiree healthcare costs were rising fast. The city miscalculated the rate of inflation for medical costs during the 2000s.  But Stockton’s leaders burned through their reserves and began planning new construction projects to make the city more appealing to new residents.  A $47 million bond issue in 2004 was meant to finance construction of a sports and concert arena to revitalize the city’s downtown. The arena was built, but it ended up losing money.

A $125 million pension obligation bond sold by Stockton in 2007 also backfired. Stockton passed the proceeds to the California Public Employees’ Retirement System to pay down unfunded liabilities at the pension fund. Then the fund suffered steep losses when financial markets plunged in 2008 and early 2009 and left Stockton with a 23 percent loss on its invested proceeds and in debt to investors who bought the bonds.

We can clearly see the results of deficit spending to increase the economy.  It is a miserable failure and only serves to make matters worse.  One should identify the causes of the increasing debt and address that issue.  Trying to make the money up by other schemes is another reality denying practice.  Sure, it’s magical!  Borrow money and invest in more borrowed money funds to make money.  What could go wrong?

So, let’s summarize, the austerity decried by Amartya Sen is a fiction.  It hasn’t happened.  He has denied reality and chose to invent some reason for failure other than what has actually occurred.  The few nations which actually followed through with austerity measures are doing fine.  Just look to the Baltic states as examples.  The idea of increasing spending to solve a debt crisis when there is no more money to spend is similar to the belief in unicorns.  It’s vapid and denies reality.  The advocates of such stupidity deny the reality of what caused the economic meltdown in the first place.  All markets have swings, up and down, the difficulty occurs when you’ve nothing left in the tank to weather the storm.  I also showed today where the European bank lowered interest rates.  This only works when the rates are too high.  What’s next?  Are we going to start paying people to borrow?  There’s no room to lower rates, there’s nothing left in that tank. 

The reality is there is very little wealth creation going on.  There’s lots of movement of paper, but little wealth creation.  Nothing will get better until we get back to making things. Tangible things which hold a tangible value.  Mine, drill, mill, fabricate, farm, and build, these are the things which create wealth. 

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