The Facts Are in: Austerity Politics Doesn't Work

The Facts Are in: Austerity Politics Doesn't Work

Wednesday, 04 December 2013 09:20 By Sally Kohn, Yes! Magazine | Opinion 

(Photo: Austerity protesters march on Parliament in opposition to government spending cuts on March 26, 2011 in London, UK. An estimated 250,000 people took part in the rally. via Shutterstock) 
From England's double-dip recession to Portugal's spiking unemployment, there is now conclusive evidence of the complete failure of austerity.
The idea that rational thinking should govern political decision making in America dates back to our very founding. “Facts are stubborn things,” John Adams said, “and whatever may be our wishes, our inclinations, or the dictates of our passion, they cannot alter the state of facts and evidence.”
Oh, John Adams, where are you when we need you? Facts have been buried in a political era in which partisan ideology overrides reason. And while the Republican Party has embraced fact-free governance as its personal brand, Democrats are not entirely innocent either.

Take the case of “austerity politics.” Persistent, despite the facts. There is now conclusive evidence, both practical and theoretical, of the complete failure of austerity politics.

First was the United Kingdom, the practical test case for austerity. In 2010, faced with a recession similar to those gripping most other industrialized nations, Britain’s conservative government instituted a series of austerity measures to dramatically cut spending and taxes. Parts of the U.K. government were slashed by upwards of 30 percent.
The result? Utter and unquestionable failure. The deficit remained high while the country suffered through a double-dip recession. Austerity shaved 6 percent from the country’s GDP over the last three years. Major credit agencies downgraded Britain’s AAA rating for the first time in generations. The Fitch ratings agency blamed weak growth performance, “partly due to … public sector deleveraging.”
In other words: austerity. The International Monetary Fund has been pressuring the United Kingdom to back off austerity for its own good and the good of the global economy—which is funny because it was the International Monetary Fund that pressed for austerity measures in the first place.
Take another example, Portugal—which was forced to slash spending drastically in order to qualify for an IMF and EU bailout. The result? The Portuguese economy worsened, with the nation’s debt-to-GDP ratio going up not because its deficit increased but because the economy contracted. The nation’s already-painful 13 percent unemployment rate grew to more than 16 percent. And there are similar examples of austerity’s failures from Ireland to Italy to Spain.
Okay, mumble conservative economists, a few countries may have stumbled but the theory of austerity is still sound. Around the same time Britain launched its austerity experiment, two American professors—Carmen Reinhart and Kenneth Rogoff—published a study arguing that economic growth suffers when a nation’s public debt level reaches 90 percent of GDP. Reinhart and Rogoff’s study became the calling card for pushing austerity politics in the United States and abroad. And then, in April 2013, a graduate student at the University of Massachusetts at Amherst found a simple spreadsheet error that, when corrected, entirely ruined Reinhart and Rogoff’s theory.
Suddenly, the research used to back the case for austerity was 100 percent disproven.
And yet, conservatives—as well as a few too many spineless Democrats—continue to assert that austerity makes for good economics, in spite of the fact that real-world evidence and theoretical science now decisively prove otherwise. In Spain and Greece and beyond, citizens have been mounting protests against a backdrop of skyrocketing rates of suicide and devastating unemployment wrought by austerity measures. And yet these mass protests receive far less attention than the outmoded assertions by the monied elites. In their case, whether there’s evidentiary support for austerity or not is irrelevant—the powers that be simply seek convenient window dressing on their ideology that insists we should cut taxes and spending in good economic times and in bad, that basically there is never a case for anything other than severe austerity. And so while the facts behind austerity politics have collapsed, the ­ideology remains—as hollow and destructive as ever.

There Are Fewer Banks Now Than At Any Point Since The Great Depression

By Alan Pyke on December 3, 2013 at 8:57 am

 

"There Are Fewer Banks Now Than At Any Point Since The Great Depression"

As of the third quarter of 2013, there were fewer banking companies in America than there have ever been since the Federal Deposit Insurance Corporation (FDIC) started keeping track in 1934. The record contraction signals that banking assets are concentrated in fewer institutions, which reinforces concerns that some banks remain “too big to fail.”
The FDIC’s most recent quarterly report found that there are 6,891 banks in the country, down from a peak of over 18,000 in the 1980s. Of the 10,000 banks that disappeared between the 1984 peak and 2011, about one in six collapsed, according to the Wall Street Journal. The rest of that contraction comes from mergers. As the number of companies has shrunk, the size of total banking deposits has grown to a record high.

As the industry has grown more concentrated, its largest companies have grown even larger. The four largest banks in the country — JP Morgan, Bank of America, Citigroup, and Wells Fargo — now hold assets equal to about 47 percent of the entire American economy, up from 43 percent in 2008.
The megabanks have long enjoyed an implicit multi-billion-dollar subsidy thanks to their size. By appearing to be “too big to fail,” the megabanks gain a market advantage — the assumption that they will be bailed out by taxpayers causes other companies and the government to lend them money at cheaper interest rates. The editors of Bloomberg have estimated that the biggest banks get about $83 billion per year in taxpayer subsidies due to the perception that they won’t be allowed to collapse.
Efforts to dismantle that assumption are making progress, though experts disagree on just how much. Some lawmakers have introduced legislation to shrink the biggest banks. Sen. Elizabeth Warren (D-MA) has been a vocal critic of the Obama administration’s efforts to curb too big to fail banks, while various Republicans have muddied the waters by wrongly claiming that reforms designed to prevent bailouts actually guarantee them. The ratings agency Moody’s Investor Services recently downgraded its credit ratings for several giant banks, signaling that its analysts believe that addressing the problem has been successful. But short of breaking up the biggest banks, there is no way to guarantee that the problem is neutralized until one of these giant institutions collapses and provides a trial run for the new systems Congress put in place in 2010.