Austerity Fanatics Won't Let Mere Economics Stop Them From Thinking They're Winning

05/31/2013 04:00 pm ET
  • Mark Gongloff Managing Editor, Business and Tech, The Huffington Post
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Like Hiroo Onoda, the Japanese soldier who hid on an island in the Philippines for 30 years refusing to believe Japan had lost World War II, austerity fanatics are never going to admit their failure.

Instead, they are going to keep pushing the policies that are making millions of people in Europe and the United States miserable.

The latest example of their denial is a piece by Michael Rosen of the American Enterprise Institute, a conservative think tank, entitled "Austerity And Its Discontents." He declares that, far from being shamed by the recent discovery of errors in influential research by Harvard economists Carmen Reinhart and Kenneth Rogoff, austerity fans have recently gained "the upper hand" in the global argument over austerity.

Rosen argues that Reinhart and Rogoff's many loud rebuttals to their critics helped give austerians the "intellectual high ground." He ignores that, in fact, Reinhart and Rogoff's rebuttals have only compounded their errors.

He also ignores that further research has debunked Reinhart and Rogoff utterly, revealing that their biggest mistake was in confusing the cause-effect relationship between high debt and growth. It turns out, contra Reinhart and Rogoff, that there is no evidence that high debt causes slow growth -- in fact, the opposite might be true.

But then the austerians have never really needed the intellectual high ground. Their phobia of government debt is based mainly on the idea that debt is just bad because of course it has to be. It is bad when people take on a lot of debt, ipso facto the same thing is bad for government. We must eat our spinach, not our dessert!

Rosen is absolutely right when he points out that Germany, and the American Enterprise Institute, and the Wall Street Journal editorial page, and Michael Kinsley, and the many, many other long-time fans of austerity have only redoubled their efforts to push austerity measures in the wake of the Reinhart-Rogoff debunking and re-debunking.

That is why the many jubilant declarations of the Keynesians that the age of austerity is dead are premature. In fact, austerity policies are still in place in Europe and the United States, and they show no signs of going away any time soon.

Austerians can easily explain away the evidence of the misery these policies are causing. Show Rosen how Greece, Italy, Spain and other countries in the grip of austerity are suffering from failing public health and higher suicide rates, and he will explain to you how it is all debt's fault: "we should expect poor health outcomes in countries whose fiscal condition has deteriorated so badly that the government can’t pay its own bills, let alone take care of its ailing citizens," he austerity-splains.

Show Rosen how Europe's unemployment has soared to a record-high 12.2 percent, with youth unemployment up to a soul-crushing 62.5 percent in Greece and 56 percent in Spain, and he will explain to you how it is all debt's fault: "it’s easy to see why stifling levels of debt tend to bring economic growth to a screeching halt. As investors justifiably flee fiscal basket case countries, credit freezes up, and businesses simply cannot grow," he writes.

Show Rosen anemic U.S. growth, which is being held back by the biggest government-spending squeeze since the end of the Vietnam War, and he will explain to you how this is an austerity success story: "Sure enough, as government spending falls and the private sector picks up the slack, our economy has slowly begun to take flight," he writes.

This has long been the grand unifying theory of the austerians, even before they ever heard of Reinhart and Rogoff back in 2010: If they can shrink the government small enough to drown it in the bathtub, then the private sector will usher in a glorious era of growth because the ghost of Ayn Rand or something. It is a dream that not even evidence, or utter abject failure, can dissipate.

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