Wednesday, August 22, 2018

Fiscal Fascism and Industrial Poverty

Never bark at the Big Dog. The Big Dog is always right.

Four years ago, in my book Industrial Poverty, I explained how the destructive austerity policies behind the Greek crisis, and applied in many places across the continent, would trap Europe in a perennial state of economic stagnation. I used the term "industrial poverty" for this state of economic quagmire: people have access to all the basic necessities and conveniences of an industrialized economy, such as indoor plumbing, reliable power, reliable access to basic necessities such as food and clothes, a basic place to live and a low but reasonably reliable mode of transportation.


This standard of living is it. There will be no noticeable improvement over time. Children will, at best, grow up to enjoy the exact same standard of living as their parents. Generally, technological evolution will be a thing of the past; advances in the quality of life will be the privilege of the few at the top of the economic food chain. 

Back then, four years ago, my theory of industrial poverty was mostly that - a theory. I used Eastern Europe during the Soviet era as a reference point; having visited those countries while the Berlin Wall was still up, I had been able to compare a stagnant industrialized society to the evolving, growing and thriving economies of Western Europe. However, since the fall of the Soviet empire it has been difficult to point to life-size examples of industrial poverty with such clarity as the Cold War offered. 

Until now. In a chilling article on Tuesday, the Wall Street Journal reports from Greece as eight years of EU-imposed austerity - rosily referred to as the "bailout - formally come to an end (p. A6, print edition):
The Athens government hails the end of the bailout as a historic day when Greece recovers its national freedom and independence. European Union officials hold up Greece's graduation from its bailout as proof that the block's much-criticized crisis management succeeded. 
Success, huh? The Greeks have suffered immeasurable losses during these eight years. In the second part of my Greek-crisis paper for the Center for Freedom and Prosperity, I explained:
As the budget finally balances in 2018, the Greek nation has paid a hefty price for eight years of fiscal crisis measures:
  • Gross Domestic Product fell by one quarter in current prices;
  • Youth unemployment topped out at 60 percent in 2013, subsequently stabilizing around 50 percent;
  • The average Greek family has lost 38 cents of every euro they made before the crisis;
  • One fifth of government spending is gone, yet taxes have increased from 39 percent of GDP to 50 percent.
To call this a success is beyond cynical. It is an expression of fiscal fascism. The overarching goal for the European Union and its Austerity Troika partners, the ECB and the IMF, was not to save the Greek economy. If that had been the goal, they would have put the well-being of the Greek people first. Instead, the goal was to save two political ideas: the currency union and the welfare state. 

The welfare state caused the crisis, and the currency union aggravated it. Yet both are coveted institutions that the European Union will save at any cost. Europe's leaders are ideologically tied to the welfare state: it does not matter if they are socialists, liberals or social conservatives; whenever they get their hands on the powers of government, they all work hard to preserve and evolve the welfare state. 

The currency union was calibrated after the German economy, giving countries like Greece a disadvantage in foreign trade. However, it also gave them an advantage when it came to financing their budget deficits; in effect, Germany was a cosigner on their treasury bonds. This little unintended consequence of the euro zone helped the Greeks rake up a government debt that they could have defaulted on, to a large degree, by leaving the euro zone. Germany and the EU were not going to let that happen - hence they imposed their austerity packages on Greece. 

If their concern had been to save the Greek economy, they would have convinced the Greeks to dismantle the welfare state, drastically cut taxes (instead of drastically raising them) and to return health care, education and income security to the private sector. This would have turned Greece into an economic powerhouse beyond anything the European Union has seen. However, that did not happen; instead, the strategy was to downsize entitlement programs and raise taxes to pay for what was left of them, regardless of what price the private sector had to pay for it. 

To put the idea of the welfare state, and the idea of the currency union, above the well-being of the people is to make people's lives the instruments of a political idea. By definition, when government makes people's lives the instruments of a political idea, that government is fascist. Since fiscal policy is the instrument of oppression used by the EU on the Greek people, it is appropriate to refer to this as a case of fiscal fascism.

The Wall Street Journal article, of course, does not refer to the austerity policies - or the "bailout" - as anything of that sort. However, they do provide a good account of what it means to live in industrial poverty, the lifestyle that the Greek people must now get used to for the next couple of generations. The era of austerity, namely, is not over:
But many Greeks find it hard ot believe that this truly is the end of an era. Pessimism and anger prevail in much of greek society, after a decade of economic depression that has left people exhausted and disillusioned. Austerity - in the form of deep cuts to public services and suffocatingly high taxes - is set to continue for a generation, under a deal between the Athens government and its lenders. 
There is a very good reason why austerity won't end: the welfare state is still there. Its entitlements cost more than the Greek taxpayers can afford, and it certainly has not helped that practically every conceivable tax has gone up dramatically (see Table 3 in this paper for an account of the destructive income-tax hikes). So long as the Greeks keep their welfare state, they will be unable to break out of their now-perennial economic stagnation. 

As the Wall Street Journal article continues, it interviews people in Greece about life in an economically crippled country:
Mr. Fasois doesn't expect his life to change after this summer. He has little hope for the country's future. "These children are born indebted," he said, pointing to his three children, who are aged 5, 7 and 9. "And 'm not talking about my own, but the country's debt." ... Dr. Karakosta Papchristou described how, during a recent inauguration she attended, the dean of Athens Medical School told new students that their [medical] degrees would make it easy for them to find a job abroad. ... Panagiotis Makaronis, a 41-year-old taxi driver on the island of Lesbos, dismisses the end of the bailout era as "a joke." "If you pay all the taxes you have to, you might as well put a stone around your neck and drown yourself," he said.
The last point pretty much sums up why the children and young students in Greece have no future to look forward to in their own country. Government has prioritized itself over the people, to the point where it has destroyed the future of its own people.  

A business owner, also interviewed, had 25 employees before the crisis. Even though she has seen a small uptick in sales recently, she is nowhere near even hiring a single person back. 

Under fiscal fascism, robbing the children of your country of their future, and dooming them all to a life in industrial poverty, is a small price to pay for a balanced government budget and the illusion of saving the welfare state.

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