Destructive Neoliberal Economic Austerity
Economics / Economic Theory Nov 27, 2010 - 08:39 AM GMTBy: Stephen_Lendman
Instead of vitally needed stimulus, Washington and European governments dictate austerity. The pretext of deficit reduction is being used to transfer more wealth to those already with too much, plus the usual canard over the urgency to save national banking systems.
In other words, make ordinary people bear the burden of bailing out banking giants responsible for the severest economic crisis since the Great Depression. How? The usual IMF solution, involving preservation of capital at the expense of workers - a package including wage and benefit cuts, less social spending, privatization of state resources, mass layoffs, deregulation, lower "onerous" taxes, maintaining corporate debt service, and harsh crackdowns against resisters.
In the 1980s, it was called Reaganomics, trickle down, and Thatcherism. Today it's destructive "shock therapy" called austerity, the same scheme pitting capital against people - disposable workers tossed out for big money's gain.
It's how predatory capitalism works, destructively for so many to enrich an elite few - snake oil peddled as an economic elixir, corrupted politicians and central bankers forcing harmful policies that, in fact, don't work.
Three years of failure showed imposed measures have hurt, not helped, and the longer they continue, the more sickness will spread and deepen, causing imposed poverty. It's why independent experts see long-term depression, rising unemployment, human deprivation, and bigger than ever bonuses for bankers until the inevitable house of cards collapses. Welcome to the new world order, phase two.
In America, the Fed furiously monitized debt. First QE I, now II, likely III and IV coming that could have worked the first time if constructively, not destructively used. An earlier article explained, accessed through the following link:
http://sjlendman.blogspot.com/2010/11/quantitative-easing-elixir-or-poison.html
Swapping credit for toxic assets helps banks, not the economy. However, using it for productive investment works. In her September 8 Webofdebt.com article titled, "How to Reverse A Deflation: Helicopter Ben Needs to Drop Some Money on Main Street," Ellen Brown explained that:
"Running the government's printing presses to pay its bills has not seriously been tried since the Civil War, when President Lincoln saved the North from a crippling war debt at usurious interest rates by printing greenbacks (US notes, interest free). Other countries, however, have tested and proven this model more recently. They include Germany, which pulled itself out of a massive financial collapse in the early 1930s by printing a form of currency called "MEFO bills," and Australia, New Zealand and Canada, all of which successfully funded public works in the first half of the 20th century simply by advancing the credit of the nation. China, Malaysia, Guernsey, Jersey, India, Argentina, and other countries" also tried it successfully during hard times to revive their economies.
Why not ailing America and European ones today. Central bank money creation (credit) for public projects and other productive investments stimulates economic growth, creates jobs, and turns depression into prosperity - inflation free by keeping credit and productive investment in balance. Whenever and wherever it's been tried, it worked when done right.
Instead, sweeping austerity measures are dictated for America and Europe. Last spring, an EU summit announced a Greece bailout package, dependent on "budgetary discipline" and imposed poverty, the same IMF prescription for Latvia, Iceland, Hungary, Romania, and Ukraine. Now eurozone shock therapy, what economist Michael Hudson calls a:
"neoliberal experiment....to drastically change the laws and structure of how European society will function for the next generation. If (successful, they'll) break up Europe, destroy the internal market, and render that continent a backwater."
Calling it a "financial coup d'etat," he said "bankers are demanding (and getting governments to) rebuild their loan reserves at labor's expense," Washington using the same ugly scheme.
Throughout the West, neoliberals are empowered. "From Brussels to Latvia, (they) aim to shrink their economies (by) roll(ing) back wage levels by 30 percent or more - depression-style levels," making Europe and America banana republics.
In late September, EU countries, led by Germany, increased pressure on member states to cut deficits by lower public spending, Chancellor Angela Merkel, in fact, demanding sanctions on offenders and suspending their voting rights for continued policy breaches. At the same time, corporate taxes have been cut, continuing a burden shift to workers. Since 2000, 12 of the 27 EU countries raised VAT rates, Hungary, Denmark and Sweden now charging 25% for commodity purchases while wages and benefits are being slashed. Some new world.
Across the continent, painful worker hammering continues, Ireland the latest troubled country making headlines. On November 13, Wall Street Journal writers Neil Shah and Marcus Walker wrote: "Ireland Stirs Specter of EU Default," saying:
"Europe's debt crisis is still smoldering (months) after relative calm," showing it deceptively hid big trouble, awaiting its moment to surface. The challenges facing Ireland "show few signs of abating soon," a worrisome contagion affecting Europe's largest economies, leading analysts to wonder what shoe will drop next.
Workers, of course, are most affected, spending cuts and high unemployment taking a punishing toll. More are coming, assuring greater deprivation and added impetus for increased emigration. Monthly, 1,250 students leave Ireland as well as thousands of young workers, seeing no future at home. Those remaining face growing burdens, including homeowners to avoid forclosure. One in eight mortgages is underwater. The worst is yet to come, and similar trouble affects Greece, Italy, Spain, Portugal, Britain, and elsewhere across the continent, yet policy fixes assure worse ahead, not better.
Also in America, planned austerity the wrong solution for a sick economy, yet bipartisan support and two deficit cutting commissions back it. An earlier article explained, accessed through the following link:
http://sjlendman.blogspot.com/2010/11/obama-teams-deficit-cutting-proposal.html
It covered Obama's proposed social spending cuts, while leaving defense, banker bailouts, and other corporate subsidies intact, a prescription from hell promising harder than ever hard times for millions. On November 10, Obama's deficit cutting commission outlined its plan. The above link discussed it, a thinly veiled scheme to serve capital, not people when they most need it.
The Bipartisan Policy Center (BPC) was also mentioned, a lesser known group for the same purpose, its proposal imminent at the time. Now it's out with draconian measures as destructive as Obama's commission - proposing Social Security, Medicare, Medicaid, and other social benefit cuts, harming working households most, the way elitists always cheat ordinary people for themselves.
Co-chaired by former Senator Pete Domenici and Alice Rivlin, former director of the Office of Management and Budget and the Congressional Budget Office, it's called "Restoring America's Future," saying:
America "fac(es) two huge challenges that can only be surmounted" by bipartisan support "to curb the mounting debt (to) reinforce recovery, not impede it."
Typical elitist boilerplate, then proposing punishing measures on working households for greater enrichment for themselves. They include:
-- indexing Social Security benefits to life expectancy to reduce benefits as longevity increases; in other words, "incentiviz(ing) people to work longer to compensate for lower benefits;
-- eliminating annual cost of living adjustments (COLAs), justified by claiming inflation is overstated when, in fact, it's higher, especially for retirees facing costly medical expenses;
-- over the next 38 years, "rais(ing) the amount of wages subject to payroll taxes (now capped at $106,800) to cover 90% of all wages" - suggesting bonuses, capital gains, dividends, and other executive compensation be exempt, for many, the lion's share of their earnings;
-- instituting a one-year payroll tax holiday for workers and employers, Social Security to get no funding for 12 months to save an estimated $650 billion; supposedly, future general revenue will replenish the shortfall;
-- cutting Medicare benefits, including by higher Part B premiums (from 25 to 35% of total program costs), co-pays, and fees for outpatients services; also establishing privately owned, lower-cost, health insurance exchanges to be given competitive cost advantages over Medicare - a de facto Trojan horse to replace it eventually, leaving recipients at the mercy of predatory insurers that profit by denying expensive care;
-- by 2018, cutting Medicaid by the amount it grows faster than GDP, providing less care to the indigent, perhaps eventually none;
-- shielding insurers and drug giants from malpractice lawsuits by making it harder to file them; then capping non-economic and punitive damage awards, suits to be adjudicated in "specialized malpractice courts," that may, in fact, be civilian equivalents of military commissions, used to deny so-called "terrorists" due process and judicial fairness;
-- instituting a 6.5% national sales tax (called a Debt Reduction Sales Tax - DRST); like European VATs (value added taxes), they'll hit ordinary people hardest and can be incrementally raised anytime to hit harder;
-- simplifying the tax code to two brackets (15 and 27%), favoring the rich; regressively cutting the top personal and corporate tax rate from 35% to 27%, claiming it "will make the tax system more progressive;"
-- eliminating home mortgage and most other deductions and credits;
-- taxing employer provided health insurance to encourage less comprehensive coverage and make healthcare cost more;
-- freezing non-defense discretionary spending for four years, then capping it according to GDP growth - a prescription to slash social benefits, perhaps eliminating them later;
-- freezing "discretionary" defense spending for five years, then capping it with GDP growth; doing it, among other ways, by "reforming military health care;" in other words, cutting veterans' (and perhaps active duty forces') health benefits; and
-- various other schemes hitting working households hardest.
BPC said "19 Americans (elitist ones) from across the country, with diverse backgrounds and views, examined a broad range of spending and revenue options for the federal government....We believe (their plan) provides a comprehensive, viable path to restore our economy and build a strong America for future generations and for those around the world who look to the United States for leadership and hope."
More boilerplate, disguising a scheme to enrich the few while denying equal opportunity to growing millions, especially the poor, disadvantaged, needy dependents, disabled and retirees, leaving them more than ever on their own and out of luck, the "future America" none of them want or deserve.
By Stephen Lendman
http://sjlendman.blogspot.com
Stephen Lendman is a Research Associate of the Centre for Research on Globalization. He lives in Chicago and can be reached in Chicago at lendmanstephen@sbcglobal.net.
Also visit his blog site at sjlendman.blogspot.com and listen to The Global Research News Hour on RepublicBroadcasting.org Monday through Friday at 10AM US Central time for cutting-edge discussions with distinguished guests on world and national topics. All programs are archived for easy listening.
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