Stop the Austerity Craze! Massive Budget Slashing Can Lead to Economic Disaster, Violence and Repression
Now that the shock of the Gabrielle Giffords shooting is starting to wear off and the country is returning to its more familiar climate of insanity, we’re back to facing a far worse, far more serious, and far more violent threat than mere rampage shootings: Austerity.
The Washington-Wall Street power circuit has already decided for the rest of us that “austerity” will define the 2011 political agenda. Austerity is what the oligarch-sponsored Tea Party demanded, what the Republicans are promising to deliver now that they’re in control of drafting the budget in the House, and what the Obama administration is going to try to enact as part of its neo-Clinton triangulation strategy. And the DC pols have the total endorsement of the corporate media, which have been hammering home the same message for months now: Austerity is the answer to our problems — problems that were created by the same establishment which wants to make us scream in pain again.
The way this austerity debate has been framed in all the major media outlets, anyone pushing for austerity cuts and “pain” is automatically labeled “courageous”—which is an odd way of defining courage, since not a single rich politician or pundit pushing for "austerity" will actually suffer that pain, and most will profit from it. But that’s what counts as courage in our era.
Bush speechwriter-turned-Washington Post pundit Michael Gerson has been an early promoter of the courage-austerity complex. Here's Gerson writing about his old colleague, former Bush OMB director Mitch Daniels, now Indiana governor, whose first act upon taking oath was pawning the Indiana Turnpike to a multinational as fast as you can spell courageous: Daniels became a highly successful Indiana governor, combining a motorcycle-driving, pork-tenderloin-eating populism with courageous budget cutting, a solid record of job creation and a reputation for competence.
By this logic, if Mitch Daniels is the courageous one, then that means that the opposite of courage is us, the cowardly masses of lazy slobs, who need to be whipped into shape with a steady lashing of the “austerity” whip. We prove our unworthiness whenever we call for “Austerity for the rich,” which is of course the opposite of courage.
And while considering the implications of living in a country where politicians and pundits are allowed to call selling off juicy pieces of the state courageous acts, there's something even more troubling about it; what has happened in modern history after the austerity drive is finished: These measures almost always end in the worst worst-case-scenario imaginable: economic disaster, violence and repression.
Let’s start with the most catastrophic of all austerity programs in history—the one austerity program none of the Austerity Snake Oil peddlers want you to know about. It was the disastrous austerity program tested out in Germany way back in 1930, under Chancellor Heinrich Bruning, himself an austere centrist.
The Depression was just spreading around the globe, and Bruning, backed by Germany’s industry titans, believed Germany would only recover with a strong currency, which he tethered to the gold standard, and a balanced budget through brutal cuts in wages, pensions and unemployment benefits, and hikes in taxes and fees. Bruning learned austerity as a doctoral student at the London School of Economics -- which nurtured and promoted "free-market" whores like Friedrich von Hayek and the “Austrian School” that is still being piped out to us through major outlets like the editorial pages of the Wall Street Journal and the libertarian press.
Bruning applied the von Hayek medicine to Germany, and the resulting backlash was so intense he suspended parliamentary democracy and ruled by emergency decree, setting a fine example for the next guy who took power. After just two years of “austerity” measures, Germany’s economy had completely collapsed: unemployment doubled from 15 percent in 1930 to 30 percent in 1932, protests spread, and Bruning was finally forced out. Just two years of austerity, and Germany was willing to be ruled by anyone or anything except for the kinds of democratic politicians that administered “austerity” pain. In Germany's 1932 elections, the Nazis and the Communists came out on top — and by early 1933, with Hitler in charge, Germany’s fledgling democracy was shut down for good.
That should have sealed the coffin on “austerity” and “Austrian Economics,” but somehow von Hayek and his fellow Austrian aristocrats who were forced to flee from the fruits of their economic programs, did a complete revision of history. Once they were safely in England and America, sponsored and funded by oligarch grants, hacks like von Mises and von Hayek started pushing a revisionist history of the collapse of Weimar Germany, blaming not their austerity measures, but rather big-spending liberals who were allegedly in charge of Germany’s last government.
Somehow, von Hayek looked at Chancellor Bruning’s policies of massive budget cuts combined with pegging the currency to the gold standard, the policies that led to Weimar Germany’s collapse, policies that became the cornerstone of Hayek’s cult — and decided that Bruning hadn’t existed. That instead Hitler came to power because Germany’s government grew too fat even as Bruning enacted massive spending cuts, its currency a mere paper currency even though Bruning kept it tied to gold, the German people a bunch of spoiled welfare queens living too high on the socialist hog when in fact they were starving in the streets suffering from unbearable pay cuts, and that these profligate German fat-cat pensioners and unemployment-insurance-queens were so hellbent on enjoying their government handouts that they elected a Nazi.
Austerity programs and gold-backed currencies were the cause of enormous pain, violence and disaster throughout the West in the early 1930s: In England, austerity measures led to one of the biggest mutinies in Britain’s military history since the time of the French Revolution; the Invergordon Mutiny of 1931, when up to half the Royal Navy rose up against austerity cuts, took over ships and sent fears of a Bolshevik revolution throughout the country. The mutiny and strikes worked somewhat: Britain was finally forced to abandon the gold standard, and wage cuts were softened.
As a counter-example, Sweden, just about the only country that adopted a “mixed economy” model, suffered far less from the Great Depression that affected the whole world; unlike the austerity-dosing countries, Sweden was already back on its feet and booming by 1932.
Take a look at just about any austerity program over the past century, and the record is always the same: economic destruction, political destruction and violence. Take Venezuela; ever wonder why Venezuelans chose Hugo Chavez? What made Venezuelans so radicalized that they’d to turn to a Fidel Castro groupie to save them?
Austerity is what happened, cooked up in Washington by the same financial elite we’re facing today. In February 1989, Venezuela elected as president a candidate, Carlos Andres Perez, who campaigned as a populist-liberal promising voters he would fight against the IMF and World Bank, which were trying to force an austerity program on the country. They believed Perez because the last time he was president, in the 1970s, he’d nationalized the oil industry as well as American iron ore interests.
But Perez was a fraud, a fake-liberal who’d secretly sold himself to bankster oligarchs and conned the voters. Three weeks after winning the election, President Perez rammed through an austerity program written by the IMF that sparked immediate mass protests. Perez did what all austerity-lovers do: he declared a state of emergency and suspended the Constitution, and called out the security forces, who massacred at least 1,000 and perhaps as many as 3,000 Venezuelan protesters. While everyone in the West knows about the comparatively smaller massacre in Tiananmen Square that same year, few have heard about this massacre, which Venezuelans call "the Caracazo." Naturally, this con-job and massacre was an example of “courage" -- that’s how IMF’s Michel Camdessus described Perez’s decision to massacre protesters. Here’s an New York Times article from 1989:
WASHINGTON, March 8 —The International Monetary Fund's managing director, Michel Camdessus, asserts that economic stabilization measures in Venezuela ''are proving even more painful'' because they were ''too long postponed.'' He made the comment in a letter written on Monday, just days after unrest caused by tough economic measures led to up to 375 deaths in Venezuela. Mr. Camdessus praised the new Government of President Carlos Andres Perez for its ''courage'' in embracing an economic shock program that was designed to increase economic efficiency, and said the I.M.F. would support it ''with all the influence at its disposal.'' But he rejected charges from Mr. Perez that the I.M.F. was at least partly responsible for last week's disturbances because it had recommended some of the revamping measures.
Notice the same twisted rhetoric used then as we see today; the elites who impose austerity and slaughter civilians and declare states of emergency to protect IMF programs are labeled “courageous,” while the people who are killed don’t get so much as a column inch. Notice how President Perez blames Camdessus, and Camdessus blames an alternative history that could have been if only previous leaders been “courageous” too and enacted these insane price hikes and wage cuts earlier.
Venezuela’s austerity programs created greater poverty, richer oligarchs, worse corruption, and the inevitable backlash in the form of Hugo Chavez, who staged a coup in 1992 that almost succeeded…and later won the presidency through the ballot box. Perez had to flee to Miami with his family to avoid being put on trial for the massacre; he died just last month in shame.
Austerity programs in the ex-communist Soviet countries led to similar disastrous results: As I wrote about in the Nation, Larry Summers oversaw Lithuania’s austerity program in the early 1990s, sparking overnight the world’s highest suicide rate, economic misery and a backlash that made Lithuania the first country in the former communist bloc to vote the communists back into power -- anything to stop the pain.
In Russia, austerity measures dictated by the same Hayek groupies in the IMF led to a complete financial market meltdown, an over 50 percent collapse in the GDP, the untimely deaths of millions, and of course the requisite President Yeltsin ruling by decree, bombing his own parliament, then finally snuffing democracy by handing the Kremlin over to his crony, Vladimir Putin.
The Russian economists who helped design their austerity program spent a lot of time learning from Friedrich von Hayek’s favorite austerity-program-cured country on earth, the Chile of Generalissimo Augusto Pinochet (South Africa’s apartheid regime came a close second in Hayek’s austere Austrian heart). That austerity program, implemented in 1975 under the advice of von Hayek and Milton Friedman, was implemented after the brutal massacres and destruction of democracy, a clever reversal of the usual formula; Pinochet overthrew the democratically elected president, Salvadore Allende, in 1973, massacred roughly 3,000 opponents and locked up and tortured countless more, providing the perfect conditions for von Hayek’s austerity measures.
In 1975, those measures were implemented, and the results were, naturally, catastrophic. GDP collapsed almost 15 percent in just one quarter, while unemployment soared from 3 percent under Allende to 20 percent. The economy didn’t reach 1971 levels until the end of the 1970s—and then the whole house of Austrian-economics cards collapsed two years later. But the good thing for Chileans was, they didn’t have to go through the trauma of massacres and end-of-democracy, since that was already served up in advance. By the end of it all, Chile was left with a new class of massively enriched financial oligarchs, the public sector unions in tatters, and one of the world’s worst wealth inequalities.
But you don’t hear about that much, not outside of the subculture of anti-globalization protesters and fans of Naomi KIein's reporting. Thanks to inane but heavily funded propaganda, Hayek’s experiment in Chile is constantly called a success story. When a private mining firm was too inefficient and corrupt to rescue its own trapped miners last year, the private company got the state mining company to bail its trapped workers out. Nevertheless, the story we Americans got through the Wall Street Journal was that the rescue of the miners was somehow “proof” that Hayek and Friedman’s free-market experiments that Generalissimo Pinochet tested out on Chile were somehow responsible for saving those trapped miners. The logic goes like this: The private company got their miners trapped and couldn’t rescue them; the state mining company rescued them; therefore, free unfettered markets rescued the trapped miners. It’s the logic Hayek used to argue that phantom Big Government New Dealers brought about the Nazis, rather than Bruning’s austerity measures.
We Americans alone among the world are the only suckers who take it on faith that Pinochet performed an economic miracle in Chile.
Now, at last, the same austerity programs that have led to massacres, wars, pain and catastrophe all over the world are finally coming home to the very people and country they were intended to poison all along.
Why now, you ask? Why, after all the economic destruction and inequality that resulted from decades of deregulation, privatization, slashing taxes on the rich, and relentless bashing of evil big-government—why would we adopt a far more purified, radical version of the same disastrous free-market program? Why would we have to take more pain medicine from the same people who already poisoned us?
Simple: Because we’re weakened from having our wells poisoned by free-market, libertarian ideology over the past three decades. We’re weaker, poorer, we’ve turned against the unions and the government, the only two potential sources of counter-power to billionaires and corporations — what predator wouldn’t move in for the kill at this very moment? Now’s the perfect time to take everything that Austrian economics has to offer to its practitioners. Plundering the weak and shooting them in their heads when they resist — that’s the definition of courage to America’s degenerate ruling class.
Here's Mark Ames with MSNBC's Dylan Ratigan discussing austerity: