Has the IMF renounced neoliberalism? Well, not really.

Sound the alarms! Could the International Monetary Fund be reconsidering neoliberalism? Sadly, no, once we actually read the short document “Neoliberalism: Oversold?

The title certainly does grab our attention, and on the very first page, there is this highlighted passage: “Instead of delivering growth, some neoliberal policies have increased inequality, in turn jeopardizing durable expansion.”

Ah, but disappointment quickly sets in while reading the first paragraph, which purports to hold up Pinochet-era Chile as model “widely emulated across the globe,” including a mention of Chicago School godfather Milton Friedman proclaiming Chile an “economic miracle” in 1982. The actual record is not mentioned, nor is the little matter of military dictator Augusto Pinochet’s wave of terror that killed, imprisoned, tortured and imprisoned tens of thousands mentioned. Details in the eyes of the IMF, we presume.

The institution of neoliberalism in Chile, 1973: La Moneda, the presidential palace, is bombed (photo by Biblioteca del Congreso Nacional de Chile)

The institution of neoliberalism in Chile, 1973: La Moneda, the presidential palace, is bombed (photo by Biblioteca del Congreso Nacional de Chile)

In reality, Chile’s poverty rate skyrocketed to 40 percent under Pinochet, while real wages had declined by a third and one-third of Chileans were unemployed during the last years of the dictatorship. Unemployment figures do not include the many urban Chileans who worked as “car minders” earning small tips from waving orange rags at motorists pulling into parking spaces and taking the motorists’ coins to insert into parking meters, which Pinochet’s planning minister, a Friedman disciple, declared to be “a good living.” Lavish subsidies were given to large corporations, public spending was slashed and the social security system was privatized. The privatized social security system was so bad for Chilean working people that someone retiring in 2005 received less than half of what he or she would have received had they been in the old government system.

Let us not forget the humanity of those whose lives were crushed by Pinochet and Friedman.

Pinochet's soldiers show what they think of literature (photo from CIA Freedom of Information Act via Wikimedia Commons)

Pinochet’s soldiers show what they think of literature (photo from CIA Freedom of Information Act via Wikimedia Commons)

Back to the IMF paper, which defines neoliberalism blandly as “deregulation” and “a smaller role for the state.” A far better definition of neoliberalism is provided by Henry Giroux:

“As an ideology, it construes profit-making as the essence of democracy, consuming as the only operable form of citizenship, and an irrational belief in the market to solve all problems and serve as a model for structuring all social relations.”

The authors of the IMF paper gingerly work themselves up to some mild critiques, lamenting that “The benefits in terms of increased growth seem fairly difficult to establish when looking at a broad group of countries” and that “The costs in terms of increased inequality are prominent.” Furthermore, the odds of an economic crash are raised, among other problems:

“Austerity policies not only generate substantial welfare costs due to supply-side channels, they also hurt demand—and thus worsen employment and unemployment. … [I]n practice, episodes of fiscal consolidation have been followed, on average, by drops rather than by expansions in output. On average, a consolidation of 1 percent of [gross domestic product] increases the long-term unemployment rate by 0.6 percentage point and raises by 1.5 percent within five years the Gini measure of income inequality.”

Decades of stagnant wages, hollowing out of manufacturing bases and steadily increasing inequality, augmented by unsustainable stock-market bubbles and capped by eight years and counting of economic downturn and stagnation, and that is the best the IMF can do? The paper concludes with this passage: “Policymakers, and institutions like the IMF that advise them, must be guided not by faith, but by evidence of what has worked.”

The belief in neoliberalism and austerity, or supply-side economics, or Reaganism, or Thatcherism (whatever we want to call it) has always been based on faith, at least on the part of some of those who promote it. For many other financiers and industrialists, it surely is the case is they knew just what was going to happen and cheered it all the way because they were going to benefit handsomely. Economics may be the dismal science, but dismal though classical economics is, it is far more art than science, as in the art of fleecing.

The destruction of Jamaica’s economy through austerity

A small country immiserates itself under orders of international lenders; unemployment and poverty rise, the debt burden increases and investment is starved in favor of paying interest on loans. If this sounds familiar, it is, but the country here is Jamaica.

So disastrous has austerity been for Jamaica that its per capita gross domestic product is lower than it was 20 years ago, the worst performance of any country in the Western Hemisphere. In just three years, from the end of 2011 to the end of 2014, real wages have fallen 17 percent and are expected to fall further in 2015, according to the country’s central bank, the Bank of Jamaica.

Such is the magic of austerity, or “structural adjustment programs,” to use the official euphemism of the International Monetary Fund and World Bank.

A new paper from the Center for Economic and Policy Research, “Partners in Austerity: Jamaica, the United States and the International Monetary Fund,” reports that the amount of money Jamaica will use to pay interest (not even the principal) on its debt will be more than four times what it will spend on capital expenditures in 2015 and 2016. And despite a new loan, the country actually paid more to the IMF than it received in disbursements from the IMF during 2014!

Holywell National Park in Jamaica (photo by Wolmadrian)

Holywell National Park in Jamaica (photo by Wolmadrian)

As a further sign of the times, the current pro-austerity government of Jamaica is led by the National People’s Party, the party of former democratic socialist Prime Minister Michael Manley. Prime Minister Manley took office in 1972 on promises to combat social inequality and injustice, and he is credited with enacting legislation intended to establish a national minimum wage, pay equality for women, maternity leave with pay, the right of workers to join trade unions, free education to the university level, and education reforms that enabled students and teachers to be represented on school boards.

He also became an international figure advocating for progressive programs to be implemented elsewhere. Naturally, this did not sit well with the United States government. When Prime Minister Manley stood with Angola against the invasion by the apartheid South African régime and supported Cuban assistance to Angola, he defied a warning from U.S. Secretary of State Henry Kissinger. The CIA presence in the Jamaican capital, Kingston, was doubled.

A Jamaica Observer commentary noted parallels between the overthrow of Salvador Allende in Chile and unrest in Jamaica later in the 1970s:

“The imperialists applied the same ‘successful’ Chile model of destabilisation in Jamaica. They applied the same strategy of ‘making the economy scream,’ creating artificial shortages of basic items, promoting violence, including the savage murder of 150 people in a home for the elderly. Violence erupted in Jamaica as was never seen before in the ‘shock and awe’ tactics mastered by the imperialists whenever they want to create fundamental change in someone else’s country. Manley and Jamaica yielded under the pressure and eventually took the IMF route.”

Replacing human development with austerity

The conservative who took office in 1980 reversed Prime Minister Manley’s programs. By the time that Prime Minister Manley returned to office in 1989, he had moved well to the right under the impact of changing world geopolitical circumstances and the dominance of neoliberal ideology. As an obituary in The Economist dryly put it, “He did as the IMF told him, liberalised foreign exchange and speeded up the privatisation of state enterprises.”

The one-size-fits-all program, a condition of IMF and World Bank loans, includes currency devaluation (making imports more expensive), mass privatization of state assets (usually done at fire-sale prices), cuts to wages and the prioritization of the profits of foreign capital over a country’s own welfare. The 2001 film Life and Debt, produced and directed by Stephanie Black, depicted a country on its knees thanks to “structural adjustment.” The film’s Web site sets up the picture then this way:

“The port of Kingston is lined with high-security factories, made available to foreign garment companies at low rent. These factories are offered with the additional incentive of the foreign companies being allowed to bring in shiploads of material there tax-free, to have them sewn and assembled and then immediately transported out to foreign markets. Over 10,000 women currently work for foreign companies under sub-standard work conditions. The Jamaican government, in order to ensure the employment offered, has agreed to the stipulation that no unionization is permitted in the Free Trade Zones. Previously, when the women have spoken out and attempted to organize to improve their wages and working conditions, they have been fired and their names included on a blacklist ensuring that they never work again.”

The film shows the destruction of Jamaica’s banana industry and the decimation of its milk-production capacity because the country is forced to open itself to unrestricted penetration by multi-national capital, while those corporations continue to receive subsidies provided them by their home governments. The Life and Debt Web site reports:

“In 1992, liberalization policies demanded that the import taxes placed on imported milk solids from Western countries be eliminated and subsidies to the local industry removed. In 1993, one year after liberalization, millions of dollars of unpasteurized local milk had to be dumped, 700 cows were slaughtered pre-maturely and several dairy farmers closed down operations. At present, the industry has sized down nearly 60% and continues to decline. It is unlikely the dairy industry will ever revitalise its growth.”

Poverty and unemployment continue to rise

Austerity continues its course today. The Center for Economic and Policy Research’s “Partners in Austerity” paper, written by Jake Johnston, notes that conditions in Jamaica are worsening — unemployment, at 14.3 percent as 2014 drew to a close, is higher than it was when the global economic crisis broke out in 2008 and the 2012 poverty rate (latest for which statistics are available) of 20 percent is double that of 2007.

Jamaica currently has a debt-to-GDP ratio of 140 percent, an unsustainable level that has risen. Yet it is required as a condition of its latest IMF loan to maintain an unprecedented budget surplus of 7.5 percent. Thus the paper declares the country is undergoing the world’s most severe austerity because this surplus, the highest dictated to any country, must be extracted from working people on top of what is extracted for interest payments.

Jamaica has re-financed its debt twice in the past three years, and its latest IMF loan, agreed to in 2013, comes two years after previous loans were cut off because the government said it would pay promised wage increases to public-sector employees. The debt exchanges lowered the interest rates and extended the payment period, a combination that does not necessarily mean less interest will ultimately be paid out. Without debt relief, there is no exit from this vicious circle. The “Partners in Austerity” paper says:

“Crippled with devastatingly high debt levels and anemic growth for years, Jamaica is certainly in need of financing. But it is also the case that, after billions of dollars of previous World Bank, [Inter-American Development Bank] and IMF loans, much of its debt is actually owed to the very same institutions that are now offering new loans.” [page 2]

Financing schemes, whatever negative consequences it might ultimately have for the debtor country, are lucrative for investment banks. For example, banks underwriting Argentine government bonds earned an estimated US$1 billion in fees between 1991 and 2001, profiting from public debt. Yet the foreign debt continued to grow. In one example during this period, a brief pause in Argentina’s payment schedule was granted in exchange for higher interest payments — Argentina’s debt increased under the deal, but the investment bank that arranged this restructuring, Credit Suisse First Boston, racked up a fee of US$100 million.

Less for public needs

As a result of the new austerity measures, Jamaican government spending on infrastructure has fallen to 2.6 percent of gross domestic product, as opposed to 4.2 percent as recently as 2009. Moreover, the government is required to siphon $4.4 billion over four years from its National Housing Trust to replenish government coffers drained to pay off the loans. The trust, a legacy of Prime Minister Manley, is mandated to provide affordable housing, and yet it is the same National People’s Party that is raiding it under IMF orders.

The country’s economic difficulties would be still more severe if it were not for aid from Venezuela and investments from China, according to “Partners in Austerity.” The paper reports:

“Venezuelan funding comes through the Petrocaribe agreement, where Jamaica receives oil from Venezuela, paying a portion up front and keeping the rest as a long-term loan. Jamaica pays a lower interest on the Petrocaribe funds than it does to its multilateral partners. According to the IMF, net disbursements through Petrocaribe totaled over $1 billion over the last three years, averaging 2.5 percent of GDP per year. … A significant portion of the Petrocaribe funds are being used to refinance domestic debt, in support of the IMF program. Additionally, a portion of funds takes the form of grants and is used for social development, bolstering support to the neediest who have been most impacted by continued austerity. … Without the Venezuelan and Chinese investments staving off recession, it’s likely the IMF program would fail due to serious public opposition.” [page 13]

It is possible to provide aid that actually assists development rather than as a cover for exploitation, as Venezuela demonstrates.

Why do disastrous “structural adjustment” programs continue to be foisted on countries around the world despite the results? Undoubtedly many who prescribe “structural adjustment” continue to believe in neoliberalism in the face of all evidence. But this ideology doesn’t fall out of the sky; it is an ideology in service of the biggest industrialists and financiers, presenting the inequality and excess of capitalism as natural as the tides. But anything made by humans can be unmade by humans.

Greece’s depression is IMF’s idea of ‘progress’

The International Monetary Fund congratulated itself last week for the splendid job it is doing in Greece, declaring the country “is making progress in overcoming deep-seated problems.” With an unemployment rate of 27.2 percent, an economy that has shrunk by at least 20 percent and children going hungry, one has to shudder at the thought of what a lack of success might look like.

Temple of Zeus photo by Andreas Trepte (www.photo-natur.de)

Temple of Zeus photo by Andreas Trepte (www.photo-natur.de)

The depression in Greece is the logical conclusion of austerity, but while Greece is the first in Europe to arrive it is not alone — the composite eurozone unemployment rate reached a record 12.1 percent in March. The eurozone unemployment rate rose to 24 percent for men and women below the age of 25; the European Union-wide rate is nearly as high.

The IMF’s solution? Eliminate more jobs. In its latest report on Greece, issued on May 3 following its latest inspection visit, the IMF graciously mentioned that Greece’s wealthy don’t pay taxes:

“Very little progress has been made in tackling Greece’s notorious tax evasion. The rich and self-employed are simply not paying their fair share, which has forced an excessive reliance on across-the-board expenditure cuts and higher taxes on those earning a salary or a pension.”

But the IMF report quickly followed up by grumbling that:

“[T]he over-staffed public sector has been spared, because of a taboo against dismissals.”

Perhaps you will not fall off your chair in shock, but it is the latter of these two concerns that gets the attention when the IMF gave its verdict on what it expects the Greek government to do:

“A strong recovery will need to be built primarily on deepening structural reforms. … The government’s welcome public commitment to improving the business environment and accelerating privatization now needs to be matched with results.”

Diktats masquerading as democracy

Those bland-sounding words take on deeper meaning when we examine the “structural reforms” already imposed on Greece by the IMF, the European Commission and the European Central Bank, the “troika” that dictates Greek policy. In February 2012, for instance, the Greek government agreed to reduce the already low minimum wage by more than 20 percent, to freeze all public-sector wages until the unemployment rate falls below 10 percent and to deep cuts in pensions.

The Greek minimum wage is €751 per month (equivalent to US$990 or £636). How well could you live on such a sum?

Overall, wages have fallen 40 percent and health care spending has been cut 25 percent. Meanwhile, most of the money released by the troika goes straight back to lenders, not for internal relief. As a result of this austerity, it is no surprise that retail sales in Greece have declined by 30 percent over the past three years and an estimated 150,000 small businesses have closed. Poverty has become so widespread that an estimated 10 percent of Greek’s children go to school hungry.

All this in a country where its biggest and wealthiest industry, shipping, pays no taxes — its tax-free status guaranteed in the constitution. Greece’s wealthy pay little or no taxes, stashing their cash outside the country. Government employees are the people who can’t evade paying their taxes — yet they are the ones scapegoated for economic troubles. (A common pattern in many countries.)

The IMF made no mention of its own role in bringing about this depression in the May 3 report, instead blaming a “lack of confidence” for Greece’s struggles:

“Looking over the period 2010–2012, the much deeper than expected recession was overwhelmingly due to a progressive loss of confidence. … With fiscal adjustment set to remain a drag on GDP growth for several years to come, the key challenge is to generate the improvement in confidence needed for a recovery in investment to begin to more than offset this drag. This cannot happen unless Greece can secure broad domestic support for the program and the political stability that would come with this.”

Yes, if only Greeks would believe that hunger is a sign of progress, everything would be better! In lieu of a sudden spasm of optimism, generating “broad support” for bleeding the country dry to pay back financiers who made reckless gambles might be difficult.

Ideology masquerading as economics

Although it might be tempting to note that doing the same thing over and over while expecting different results is unreasonable, reasonableness is besides the point here: Austerity programs are designed with ideology in mind, not with economics based on the real world. One clue to this is that “structural re-adjustment” programs invariably demand sell-offs of public assets — holding fire sales of state enterprises means private capital can scoop them up at very low prices, and profit nicely from doing so at public expense.

The neoliberal concept is that people exist to serve markets rather than markets existing to serve people. Entire countries have been harnessed to the dictates of “markets.” This has long been the pattern imposed by the North on the South through institutions like the IMF; now the stronger countries of the North are imposing it on their weaker neighbors. Taxpayers in those stronger countries are on the hook, also, as some of their taxes go toward the bailout funds, for which bailed-out countries are merely a conduit to pass the money to financiers, often from their own country. Much of the money Europeans lent to Greece was used to bail out German and French speculators.

The race to the bottom, of which austerity programs and the continual shifting of production to locations with ever lower wages constitute crucial components, represents an intensification of market dominance over human life. It is also a result of a scramble to maintain profits, which have been under continual pressure from the economic crisis.

But neoliberalism is not the product of a cabal “hijacking” economies or governments; it is the natural progression of a system that insists “markets” should be the arbiter of all human problems and the model for social relations and institutions. Capitalist markets are not neutral abstractions perched loftily above the Earth; they are the aggregate interests of the wealthiest industrialists and financiers as expressed through the corporations and other institutions they control.

“Markets” dictate that school children faint at their desk due to hunger while billionaires grab ever more. We can do better than this.

Never mind! IMF now says austerity mistakes don’t matter

It did seem too good to be true. The International Monetary Fund last week issued its second paper in three months acknowledging that the damaging effects of austerity measures on economies is much stronger than previously assumed. Unlike October’s quiet admission of error, however, this time IMF researchers say colossal miscalculations don’t matter.

Perhaps the IMF is taking back the bureaucratically couched, quiet mea culpa it genteelly issued last October? Being an orthodox economist evidently means never having to say you are sorry. It does mean that if reality doesn’t match the theory, then it is reality that must be changed.

Readers may recall that in October 2012 the IMF slipped into its World Economic Outlook, in which it forecast that the global economic growth rate would continue to decline, this interesting line:

“Public spending cutbacks and the still-weak financial system [are] weighing on prospects.”

That is as close to an admission as we are likely to receive from the IMF, the World Bank or other financial institutions that the austerity that they relentlessly impose weakens economies. Perhaps some at the IMF are getting cold feet at such an admission, or, more likely, such ideologically inconvenient pronouncements received more attention than expected given the tepid language buried in an otherwise routine paper.

Thus we have last week’s interesting development, in which two IMF researchers published a further study on the IMF web site that confirmed the catastrophic mis-calculations in applying austerity, but concluded that the mistakes don’t matter and austerity must be imposed anyway. As a hedge, the paper’s front page declares it is not an official IMF document and does not necessarily represent the viewpoints of the IMF.

The IMF did see fit to publish the paper and one of the authors is its director of research, so let’s nonetheless take it seriously. As seriously as an ideological paper can be taken, even if its pre-selected conclusion is masked by jargon and mathematical formulae, and clearly intended for an audience of professional economists. There is no reason for us not to peer over their shoulders, especially as austerity has very real implications for us.

Swing an axe, get bloodletting

This debate over austerity revolves around assumptions as to the effect of spending cuts. As I wrote in my October 10 post on the IMF’s quiet confession:

“[I]t seems that governments applying austerity programs over-estimated the savings to be accrued from them. The IMF said a common figure used by governments was to assume that for each dollar lost in government spending, 50 cents is erased from gross domestic product, an assumption used when creating austerity budgets. But, the fund said, its study of the issue has found that, since the economic collapse that began in 2008, for each dollar cut from government spending, GDP is reduced from 90 cents to $1.70. In other words, the result of austerity is that it has accelerated economic contraction.”

A simple look around us confirms that finding. Stagnation or renewed economic contraction is the continuing result in the world’s advanced capitalist countries. Eurozone unemployment, for example, has risen to 11.8 percent.

Sidestepping any examination of ideological bias — not surprisingly, since that would implicate the IMF itself not to mention the entire universe of orthodox economists — authors Olivier Blanchard and Daniel Leigh refer only to “growth forecast errors” and offer a series of ideas as to the source of these innocent errors. The authors’ calculations found nearly identical errors as those mentioned two paragraphs above in calculating the effects of imposed austerity since the onset of the global economic crisis in 2008. From that, they write:

“In other words … growth disappointments should be larger in economies that planned greater fiscal cutbacks. This is what we found.” [page 3]

These “disappointments” were significant — the authors said the extra loss, beyond economists’ calculations, was nearly one percent of economic output for each one percent cut in spending, a result they found consistently in the more than two dozen countries they analyzed. Similarly bad forecasts were made by the European Commission, the Organisation for Economic Co-operation and Development and the IMF. Nonetheless, the authors conclude:

“[O]ur findings that short-term fiscal multipliers have been larger than expected do not have mechanical implications for the conduct of fiscal policy. Some commentators interpreted our earlier box as implying that fiscal consolidation should be avoided altogether. This does not follow from our analysis.” [page 6]

Finding a tree instead of a forest

Among the reasons offered for the “errors” in calculating the net effects of austerity programs are that zero interest rates can’t be cut further; that consumption is more dependent on current income than future income due to the tightening of credit; and the effect of cuts become amplified when “there is a great deal of slack in the economy.” The last of those three lead the IMF researchers to conclude that the “errors” in calculating economic effects only apply from the onset of the 2008 collapse; before that everything was fine.

Unless you lived in a developing country in which IMF-imposed austerity was applied. The authors likely do not. But, for now, they acknowledge that the “errors” in the effect of spending cuts for 2008 and beyond resulted in forecasters consistently under-estimating the rise in unemployment and the decline in demand. In the fifth year of economic crisis, the IMF researchers wrote:

“[W]e find that planned fiscal consolidation is associated with significantly lower-than-expected consumption and investment growth. … [I]nvestment varies relatively strongly in response to overall economic conditions.” [page 18]

Um, well, yes. When wages decline and unemployment rises, demand is reduced and corporations would rather sit on their cash, buy back their stock or speculate. Why should they invest when they have trouble selling what they already produce? In advanced capitalist countries, consumer spending accounts for 60 to 70 percent of the economy and if working people don’t have the money, they aren’t going to spend it if they are also trying to reduce their debt. Debt accumulated because that was the only way they could maintain living standards when wages have stagnated or declined since the 1970s.

The competitive pressures on corporations to increase their profits leads them to move production to the places with the lowest wages; that buoys profits for a time but the resulting fall in wages and rise in unemployment in the places where production is shuttered means weaker demand. Weaker demand results in increased pressure on profits, and round and round we go. Austerity, at bottom, is governments enforcing the demands of the most powerful industrialists and financiers for ever more profits.

Competitive pressures force corporations to act in such a manner, and the immense capital accumulated by the biggest capitalists grants them decisive power, ensuring that their interests become paramount when governments implement policy. The International Monetary Fund and World Bank are multi-national instruments of the most powerful capitalist governments, which in turn reflect the aggregate interests of their most powerful industrialists and financiers. If we keep that in mind, we need not fall off our chairs when an IMF paper, having laid out the damage done by austerity programs, nonetheless concludes:

“[O]our results should not be construed as arguing for any specific fiscal policy stance in any specific country. In particular, the results do not imply that fiscal consolidation is undesirable. Virtually all advanced economies face the challenge of fiscal adjustment in response to elevated government debt levels and future pressures on public finances from demographic change.” [page 20]

Thus the dramatic conclusion: The economic decline resulting from austerity has been badly under-estimated; therefore we must have more austerity. Ideology this may be, but it’s an ideology concocted to continue capitalist business as usual — it’s not an ideology that inexplicably drops from the sky. The dismal “science” indeed.

Quietly, the IMF confesses that austerity does not work

Don’t say it too loudly, because it doesn’t want you to know: The International Monetary Fund admits that austerity is not working.

The IMF of course did not come out and say this directly. But it was there, unmistakably, in its World Economic Outlook published on its web site on October 9. Forecasting the world economic growth rate to continue to decline, the IMF genteelly noted that:

“Public spending cutbacks and the still-weak financial system [are] weighing on prospects.”

And please don’t complain about the bureaucratically tepid language —  you didn’t expect an IMF official to call a press conference and apologize? No you didn’t. But that is as clear an admission as we are likely to get from the horse’s mouth that cutbacks, the magic snake oil that the IMF, World Bank and other financial institutions relentlessly impose, weakens economies.

For the record, the IMF projects 2012 growth in the world’s advanced capitalist countries will be 3.3 percent and forecasts growth of 3.6 percent for 2013, both slower than 2010 or 2011. It predicts a similar rate of decline in growth among the world’s developing countries. But let’s take note of two passages in the outlook.

“The IMF said that its forecast rested on two crucial policy assumptions—that European policymakers get the euro area crisis under control and that policymakers in the United States take action [to] tackle the “fiscal cliff” and do not allow automatic tax increases and spending cuts to take effect. Failure to act on either issue would make growth prospects far worse.”

The “fiscal cliff” is the congressional agreement made earlier this year that, barring superseding action by the U.S. Congress and president, a series of steep automatic cuts to federal-government spending kicks in at the end of the year — austerity imposed by one’s own von Neumann machine. Concurrently, the IMF believes that government investment is not necessarily a bad thing:

“The main driver [of growth in Asia] will be China, where activity is expected to receive a boost from accelerated approval of public infrastructure projects.”

So why do central bankers, financiers and multi-national financial institutions still preach austerity? Ideology, surely, plus arrogance and a lack of ability to admit the wisdom of financial elites is wrong. Nonetheless, at bottom such people are carrying out their class interests. If we had a different, more egalitarian economic system, and somebody came along and said, “Let’s immiserate entire countries so that a handful of financiers could remain fabulously wealthy by guaranteeing their profits” you would see the idea as insane. And it is.

There was one other tidbit — it seems that governments applying austerity programs over-estimated the savings to be accrued from them. The IMF said a common figure used by governments was to assume that for each dollar lost in government spending, 50 cents is erased from gross domestic product, an assumption used when creating austerity budgets. But, the fund said, its study of the issue has found that, since the economic collapse that began in 2008, for each dollar cut from government spending, GDP is reduced from 90 cents to $1.70.

In other words, the result of austerity is that it has accelerated economic contraction. A commentary on the Naked Capitalism web site written by a financial-industry professional caustically sums up what that re-calculation means:

“In case you missed it, this is an admission of complete and utter incompetence.”

IMF officials probably won’t be calling a press conference to admit that, either. The results of austerity across Europe has been devastating:

  • 25 percent unemployment in Spain.
  • 15 percent economic contraction in Ireland.
  • Population exodus out of Lithuania and Latvia.
  • 40 percent wage cuts and 22 percent economic contraction in Greece.

Unemployment has risen and wages reduced in the advanced capitalist countries. Demand is inevitably soft because of that — a vicious circle when 60 to 70 percent of economic activity is accounted for by consumer spending. Each country would like to get out of this impasse by exporting more, but the slowdown in economic growth has not spared any corner of the world. And although some countries might export more than they import, it is a zero-sum game — every country can’t be a net exporter.

One way to boost exports is to devalue your currency, but, here again, every country can’t devalue in relation to all others. China, Japan, Switzerland and the United States each has intervened in foreign-exchange markets in order to devalue their currencies (this is done through large-scale trading, not administrative fiat), but these actions can only go so far.

A critical problem for countries like Greece and Spain is that they don’t have their own currency, so, for them, the euro is over-valued. When imbalances force devaluation on a country, some of that devaluation can be achieved when its currency declines in value against others. But for users of the euro, all the devaluation has to come internally, through wage reductions, government spending cuts and destruction of capital values. Capitalism is a system of relentless competition in which only so many can be winners.

That competition tends to be seen through national lens; thus the form in Europe has been German bankers and politicians wagging disapproving fingers at Mediterranean neighbors. That distorted vision obscures the fact that it is only German industrialists and financiers who have benefitted; German workers have endured a decade of declining wages. And now that austerity has been relentlessly imposed in its eurozone customers, a decline in exports can’t be made up by internal demand thanks to those declining wages.

Eventually, austerity bites back — the IMF forecasts the composite eurozone economy to contract this year and increase by 0.2 percent in 2013, and Germany to grow by a mere 0.9 percent this year and next after posting four percent growth as recently as 2010. The German government has kept dissent down by acknowledging the sacrifices made by German workers, a point made repeatedly by the country’s mass media in the context of whipping up national feelings and directing those feelings against “profligate” countries on the eurozone’s southern rim.

It was thus a promising sign that the leader of Die Linke (the German Left Party), Bernd Riexinger, attended the October 9 demonstrations in Athens with Alexis Tsipras, the leader of Greece’s main Left opposition coalition, Syriza. Austerity is a cross-national offensive by financiers and industrialists to maintain their power and wealth at all costs. The response to austerity can only be cross-national. Capital does not care about borders and nations; similarly, working people can only reverse the devastating attacks on them through linking hands across borders.