Yesterday and today, the world watches, slacked jawed at the endgame of the Greek government’s debt negotiations. The stakes are higher than many Americans understand. So far, the U.S. financial press has viewed this as isolated to the Eurozone. That is in large part because, having endured the Great Recession, there is a view that things are only bad if they threaten the “too big to fail” American banks that can create systemic risks for the U.S. financial sector. But, that view of the world that only bank stability matters is what is so incredulous.
The advanced economies have not recovered from the Great Recession. The United States has done by far the best, because of a very early and large stimulus package that stabilized the real economy—the one where people make things and earn income to buy things, and governments perform basic services. Europe turned quickly to reducing public debt and shrinking government, which has left its real economy with high unemployment and slow growth. And, its reticence to regulate their banking sector has many of its major banks still in poor condition. This stems from accepting the neo-liberal model that the universe revolves around the financial sector as religion. It is a theocracy, but of the most ancient, it is the transformation of the worship of the golden calf; but now money.
At the time of the 2008 financial crisis, various governments were in different positions. Spain’s government was running fiscal surpluses, and was very stable. Greece’s government faced some underlying challenges of rising debt and weak tax collection. These were two extremes of the spectrum. Like financial institutions, governments need a growing and strong real economy. So, both the Spanish and Greek governments ran into difficulty. But, the economy is a system, and strong real economies need financial institutions and governments.
The neo-liberal model dictated that everyone must rescue the financial sector, making what is a system that needs all parts to be healthy, into a machine that only needs an engine. But, a healthy financial sector without government or workers and consumers is an engine disconnected from the wheels and chassis: it will go nowhere. The corollary is that there are banks too big to fail, but governments are not. And, as we saw in the U.S. case, there were those willing to say, “and there are industries, like the American automobile industry, that are not too big to fail.”
The concessions that the International Monetary Fund and the European Commission are trying to force on Greece are steeped in this set of beliefs. The IMF and EC have pushed cuts in the Greek government, threatening its very ability to function, to deliver the basic services that are the chassis holding the economic vehicle together. Of course these cuts have not pushed the Greek economy ahead; instead the economy shrank 25% and unemployment is mired above 25%.
But, beyond fiscal austerity, the IMF and the EC insist that Greece cannot get on the right track unless it institutes “structural” reforms to its economy. Here, the IMF and EC mean creating an unfettered capitalist state. Greece must weaken its collective bargaining structures; lower its labor standards and wages, so that the Greek people must be forced to bow to the will of the market. This is borne of a view that the Greeks are profligates who must be taught the value of hard work and repay their debts. More importantly, this sacrifice of the Greek people is necessary to discourage people in Spain, Portugal and Ireland from staging similar revolts against the neo-liberal order demanding a different reconciling with the debt crisis.
This is religion, because the IMF’s own current research says that inequality hurts economic growth. And, further, it is the IMF’s own current research that says that unions, in particular, are vital to combating inequality. Taking actions based on faith in the unseen and not on empirical evidence is the definition of religion or superstition.
Similar mean-spirited thoughts guided post-World War I policies in dealing with Germany and its allies in handling the financial strain of the costs of that war. Fortunately, at the conclusion of World War II, it was felt that passions that fueled those decisions were not rational. A new set of institutions would be created to handle global government finances to insure the stability of governments, with a realization that at the end, it is the economy that must serve the people and their governments, not the other way around. One of those institutions, oddly, was the IMF.
In the U.S. we must take the side of Greece in this fight. It is in our interest, as the immediate problem of the instability this is causing is a rising dollar that will hurt U.S. exports and jobs. And, we can never be sure of the interrelated nature of financial collapses since so much of the banking sector remains in the shadows; with global derivatives trading at values greater than global output.
More importantly, we must also revolt against this economic order. It is the same order that saved JP Morgan Chase, but let Detroit and now Puerto Rico fail. It is the same religion that would sacrifice the earnings of American students with rising student debt and de-invest in public higher education. It is the same religion that would sacrifice American jobs and labor standards and back the Trans-Pacific Partnership. We must see these as the same struggle to restore sanity and purpose to role of government and its servant, the economy.
And, most importantly, we must remember the lesson of World War I. We cannot predict what the response of people will be to austerity. It is every bit as likely to bring about hostility that is not rational. It might inspire little minds to unimaginable evil.