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James K. Galbraith: How to Stop the Path of Economic and Social Destruction

The verdict is in: austerity economics is a global loser.

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What are the implications? There must be a European solution, and it must begin with an assessment and a change of ideas. That’s the most important thing. When ideas change, everything else will follow. Policies will follow, and, as needed, institutions will follow after that. Many things could be done under current treaty framework. What are those things?

1. First of all, mutualize the debts and reduce the burden so that we are not working under the pretense that debts that cannot be paid will be paid. They won’t be paid. If the burden of those debts is reduced and they are effectively made the common responsibility of the European community, then they become manageable. Without that, the losses are there in any event.

2. Second part, restructuring the banks. We have to recognize that the model of growth that relied principally on the financial system to generate credit is gone, and it’s not coming back. Having large banking institutions that persist unchanged — what is the point? What purpose do they serve? What social function justifies their charters? If we have a smaller financial sector, then we have a larger employment sector. If the profits are not being drained to the big bankers, they can go to the small businesses. Why is that not a reasonable policy change both in the U.S. and Europe?

3. Third point, release funding for investment and jobs. The mechanisms have been outlined very effectively: Using existing institutions to begin a process of reconstruction and reemployment. Institutions at the continental level can do things that institutions at the national level cannot do.

4. And then there is a fourth point, which, to my mind, becomes increasingly pressing at time goes on. It’s a point which really speaks to the question of whether Europe means anything, as it would speak to the question of whether America means anything. If fact, it did speak to the question of whether America meant anything in the 1930s, when we also faced a crisis that threatened national economic and political existence. Let us recognize that our most pressing task is not to restore economic growth. It’s not to bring us back to some past level of prosperity. We’re very far beyond that. We are facing the threat of dissolution of great nations and social communities. It is an urgent matter to prevent that from happening.

Stabilization, therefore, of society, and stabilization of the human condition have a very important role to play in what me must do. That means stabilizing people’s pensions. Stabilizing unemployment insurance. Stabilizing the basic services —education and healthcare. Adequately insuring bank deposits so as to prevent the cataclysm of an uncontrollable run and shutdown of the payment system. These are things we do for each other, mainly with a device that’s called insurance: social insurance, deposit insurance, health insurance, unemployment insurance. And when we extend that to the whole community — and by this I mean the European community or the American community — we bring our populations together and stop processes that are driving us apart.

It’s seems to me that the objective to articulate is really a very simple one for the time being: It is to stop the path of destruction, to stabilize, to quell panic, to defeat violence, to buy time, frankly — not to solve all problems at once — but to buy time so as to effectively open up the possibility for a new politics based on principles that are not foreign in Europe, but that have been forgotten and submerged in recent years: the principles of solidarity and the spirit of true and effective democracy.