They Want to Jam Austerity Down Our Throats. Here’s Why They are Wrong

There are still Americans who point the finger at individual homeowners and blame the current economic crisis on the housing decisions made by these individuals. The popping of the housing bubble? Individuals who made bad decisions! The financial meltdown? Individuals! Waves of foreclosures and unemployment? Individuals!

That is why it is so important that grassroots groups in Rochester help spread the story of individuals like Leonard Spears to show how the system will methodically chew up individuals if they don’t have the resources or organized citizens behind them to push back.

In 2008 Rochester residents chanted “We didn’t create this mess! We shouldn’t have to clean it up!” as legislators, buffeted by the Wall Street meltdown, attempted to balance the budget on the backs of students and civil service workers rather than ask the 1% to pay their fair share. While we were talking to people on the street and in the lobbies of Albany we were also telling the story of what really happened to our economy.

Maybe you have read the various published accounts of Wall Street machinations or seen documentaries like The Inside Job. How we got to this point is now widely understood, but the way forward depends, to a great deal, on whether we will act on what we know to be true about root causes or whether we will stand on the sidelines hailing the Emperor’s new clothes. We are up against a powerful conservative movement pushing for austerity, spouting rhetoric about “belt tightening” and “individual responsibility,” and selectively warning about “moral hazards.”

What happened in 2007 happened in 1929 and will always happen when inequality grows and a small elite accumulate more cash than they know what to do with. Although conservatives continue to ask us to believe that elites will create jobs with the extra cash, in actuality they won’t invest in new manufacturing or any other job creation. Wall Street financial activity hasn’t had any discernible relation to actual manufacturing upgrades since the early 1970’s. Venture capital accounts for a tiny fraction of Wall Street activity. Increased inequality inexorably leads to calls (sweetened by generous campaign contributions) for more opportunities for financial speculation. The overwhelming bulk of Wall Street activity is now about side bets – pure speculation.

In the 90’s Clinton’s Wall Street backers pushed to take down the walls between commercial banks and investment banks (Glass Steagall), allowing banks on Main Street to join the Wall Street casino. Frontline’s The Warning tells the story of Brooksley Born’s lonely campaign inside the Clinton administration to regulate the newly emerging derivatives market. Ironically, she was lectured by Clinton’s other cabinet members that regulation would cause the economy to implode.

Viewers of another documentary, The Inside Job, invariably drop their jaws as the film connect the dots between a global pool of cash burning a hole in the pockets of the wealthy few, the slicing and dicing of mortgages into collateralized debt obligations, deregulated predatory lending, and extraordinarily risky credit default swaps (aka hedge insurance). This unregulated stew eventually brought the whole global financial system grinding to a halt. Standing before this house of cards economists and regulators and ratings agencies kept declaring that the game was working – until it didn’t.

The conservative machine’s response to the problem was to call for more deregulation and austerity. They have tried to convince us that the economy collapsed because people made foolish mortgage decisions and Fannie and Freddie enabled the problem. Their prescription is to double down on the policies that caused the crash – continue to dismantle financial regulation and let Wall Street move forward “unshackled.” Should we give more tax breaks to the 1% so they could “create more jobs?” Should we balance the books in state, county and city legislatures by laying off more teacher and civil service workers? They want us to believe that economic stimulation doesn’t work. Austerity and an unshackled Wall Street is the solution.

What we now know is that the Obama White House and Democratic powerbrokers did not stick by their commitment to Keynesian stimulus. To start with, the recovery act was too small by a third. Although General Motors and the banks got bailed out, President Obama refused to fire Edward DeMarco, Bush’s head of Federal Housing Finance Administration. DeMarco refuses to allow Fannie and Freddie to reduce the mortgage principal on hundreds of thousands of underwater homes. It wasn’t hard for Republicans in DC to overcome a half-hearted defense of financial regulation by Democrats who have relied more on Wall Street campaign contributions than union cash since George Meany parted ways with George McGovern over the Vietnam war. The result is that the attempted reform, the Dodd-Frank financial regulation act, has emerged from the dealmaking process toothless, revealing a governing apparatus moving toward intractable oligarchy. At the Federal Reserve, Bernanke showed creative aggressiveness in stopping the collapse of the banking system but has refused to take any strong steps to set expectations that might lower unemployment. Finally, last summer the Obama administration pivoted from a focus on stimulus to embrace conservative concerns about their favorite boogeyman – the deficit, leading to a budget deal (“sequestration”) that looks like it could plunge the American economy back into recession again.

In May, a NY Daily News headline read “Cuomo: Minimum Wage Harder to Get Than Gay Marriage.” The headline takes on broader significance when held up against poll numbers. While NY legislators and the Governor were able to muster the courage to deliver marriage equality to NYers with polls showing  just a slight margin in favor, these same elected representatives refused to take on the Chamber of Commerce and Wall Street over the minimum wage, despite massive poll numbers (78%) in favor of an increase. Our elected Democratic representatives will continue to act this way as long as they are more concerned with the feelings of campaign contributors from Wall Street and the Chamber of Commerce than the any threatened disruptive force from a massive and well organized movement.

Given the interconnectedness of our global economic system, Americans need to pay close attention to the fate of protesters in Greece and Ireland as they take on the self destructive calls for more austerity, a trend that has already threatened to plunge several nations back into recession.

We’ve seen this dynamic before. The IMF and World, in the 70’s and 80’s, undermined and destabilized the economies of emerging second and third world nations with “Structural Adjustment Policies” (SAPs). SAPs dismantled welfare systems, demanded financial deregulation and reconfigured production for export, all in the name of honoring loans from first world nations. The result was famine in the horn of Africa and genocide in Rwanda, Congo and Bosnia. This story is playing out again in Europe with the rise of nationalist and neo-nazi political parties that scapegoat immigrants. And we see that phenomenon raising its head as white Americans with low-incomes respond to racist dog whistles from the Republican campaign trail, hoping to hold onto vestiges of their race privilege.

The momentary political success of the forces of austerity in Europe is all the more remarkable given the complete bankruptcy of their analysis. They maintain that European labor market rigidity and excessively generous welfare states are the causes of the problems in Portugal, Italy, Ireland and Greece (the PIIGs). Yet all of the countries in crisis have relatively stingy welfare systems and wide inequality. At the same time however, none of the countries with generous welfare states and less inequality are in crisis. And as James Galbraith’s latest book on global inequality points out, the nations with less unemployment and minimal gaps between the rich and poor (France, Germany, the Scandinavian nations) didn’t get there by following the austerity recommendations currently being foisted on Greece and Italy. The health of their economy is not a market outcome. It is a function of public policy. They chose to avoid austerity and instead redistribute income and regulate investment and the job market. Similarly, those nations (like the cone of South America and Asia) that rejected the IMF and World Bank austerity plans are now posting the healthiest economic growth and decreased inequality.

In order to build a powerful movement to turn our economy right side up, we need to engage the struggle at all levels of government. We need to fan the sparks of the local Occupy Wall Street encampments to create momentum and power by scoring small victories, town by town and state by state. This is how social change happens – from the populist movement to civil rights to feminism – acting locally lays the foundation for thinking globally.

This is how we build the movement to change the system.


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