For centuries, the conventional wisdom and professional consensus of reputable doctors, men (mostly) who solemnly pledged to “do no harm,” was to bleed ailing patients, sometimes by applying leeches to literally suck out what was thought to be contaminated blood. That barbaric practice, now understood to make the patient worse and even risk death, and thus thoroughly discredited, would, if prescribed today, result in a doctor losing his/her license to practice.
There are no such rules for economists — including those who advise the central banks and the IMF — who are allowed to prescribe equally discredited measures. Their advice can tank an economy and put tens of millions of people out of work, but they still keep their jobs. And because there are no such rules, entire nations and their economies are regularly sickened by economists who are little more than hacks and charlatans.
The hacks and charlatans, and the banks and governments that listen to them, are now imposing the equivalent of leeches on the Greek government, its economy and its citizens. From Reuters:
Greek Prime Minister George Papandreou promised to push through radical economic reform after his new finance minister clinched agreement with EU and IMF inspectors on extra tax rises and spending cuts to plug a 3.8 billion euro funding gap.
“A comprehensive reform package… and adoption by the Greek parliament of the key laws on the fiscal strategy and privatization must be finalized as a matter of urgency in the coming days,” EU leaders said in a summit statement.
“This will provide the basis for setting up the main parameters of a new program jointly supported by its euro area partners and the IMF and allow disbursement in time to meet Greece’s financing needs in July,” the 27 leaders said.
While we’re beginning to see a few stories acknowledging that at least some economists, — e.g., Paul Krugman, Stiglitz, Galbraith, Johnson, et al, think this is economic malpractice, we still find most media reports arguing the conditions are justified and using the common terms, “a bailout for Greece.” Their use is journalistic malpractice.
None of the “bailouts” are bailouts for the Greek government, its economy or its citizens. The entities being “bailed out” are Greece’s creditors and those financial leeches and banksters who feed off those creditors, not the Greek people.
The so-called “bailouts” are loans to the Greek government to continue paying its bond holders/creditors. But the new loans are imposed on Greece under terms and conditions that, short of a miracle, may effectively prevent Greece from ever repaying them. The austerity conditions and forced sales of public assets to private predators could keep the Greeks in permanent subjugation to its creditors, with no credible mechanism to grow out of the hole.
The Greek Government is generally regarded as having been profligate, but that is a reason for voting its government out of office, not a sufficient reason for others to be punishing its people. The creditors and officials who are demanding the bailouts are unwilling to accept the consequences of their own decisions to make highly risky loans — think Citi or Bank of American/Countrywide. And those who insure those loans are unwilling to cover the insurance claims and derivatives if Greece defaults — think Lehman, Goldman and A.I.G. Greece’ creditors are primarily European — particularly German and French banks and private investors. This is their bailout, not Greece’s, but it is the Greeks who will suffer. From Paul Krugman and Robin Wells excellent and must read review of Jeff Madrick:
When the loans to Latin American governments went bad, Citi and other banks were rescued via a program that was billed as aid to troubled debtor nations but was in fact largely aimed at helping US and European banks. In that sense the program for Latin America in the 1980s bore a strong family resemblance to what is happening to Europe’s peripheral economies now. Large official loans were provided to debtor nations, not to help them recover economically, but to help them repay their private-sector creditors. In effect, it looked like a country bailout, but it was really an indirect bank bailout. And the banks did indeed weather the storm. But the loans came with a price, namely harsh austerity programs imposed on debtor nations—and in Latin America, the price of this austerity was a lost decade of falling incomes and minimal growth.
The Greek people are being told they must suffer “shared sacrifice” to keep these creditors whole — or at most, to allow private banks/creditors to roll over the loans without having to book immediate losses and expose their own insolvency. It is their reckless behavior that is being shielded from disclosure.
It is not as though economists never learned that applying leeches when a nation’s economy is anemic is counter productive. Smart and honest economists figured this out more than 80 years ago, and smart and honest economists still know this today. Those who remember these truths persistently point to example after example of how austerity measures imposed on a flattened economy with high unemployment, near zero interest rates, and little prospect of exporting your way out can’t recover through austerity.
Austerity under those conditions not only makes the economy worse, not only increases unemployment, but fails even to achieve the professed deficit reduction goals that form the misguided or pretended pretext for plundering the public sector and hurting people. The Greeks are in a debt trap, and the creditors won’t let them out.
That is what we should have learned from our own history, what the Europeans should have learned from us and many other countries. But through a calculated, deliberate effort at rewriting history and a deliberate forgetting of what economists once knew, we again live in an ignorant, barbaric era in which the conventional wisdom and professional consensus of the economists relied upon by the world’s central bankers and governments is that the way to cure an anemic economy is to bleed the government and its citizens.
In this era, good theory and confirming real-world examples don’t matter. The hacks and charlatans, funded by greed, must have their leeches, and their ideologues will applaud the bleeding as both moral and necessary. And if they can’t get that, they will threaten to tank the economy in some other way. That is what the Greeks face; it is what Americans face, not because America is the same as Greece, but because the Tea-GOP insist we pretend we are.
The Greeks are ahead of us. The Spanish, Irish, Brits and Portugese who have flooded their public squares to protest are ahead of us, just as the Egyptians were ahead of us, save Wisconsin. They understand what leeches do, and they want no part of them. They now realize their own government, their own parties and institutions have all failed and betrayed them. Their only hope is in the streets. If you’re not with them, you soon will be.
Leech update: we learn from our wonderful commenters that leeches may play a useful role, such as in reattached amputations, but the central point about not using them for anemia stands.
[Update: See Krugman's blog on the Argentine default example: Dont Cry for Argentina; Dean Baker agrees.]
Naked Capitalism, Alex Andreou, Democracy vs. Mythology: the Battle in Syntagma Square
WaPo: In Greece, Austerity Kindles Deep Discontent
NYT: Pain of British Fiscal Cuts Could Inform US Debate
NYT: Some Greeks Fear Government Is Selling Nation
NYT: Derivatives Cloud Possible Fallout from Greek Default
NYT: Major Banks and Creditors asked to Assist
NYT: New Jersy Lawmakers Pass Deep Benefit Cuts