This article first appeared at the NYTimes eXaminer.
One of the regions of the world most severely hit by the current global capitalist crisis is Europe. The European crisis has been rendered even more severe by a regression to a pre-Keynesian outlook that, as Paul Krugman has pointed out in his New York Times columns, is reminiscent of the outlook of Herbert Hoover and other political leaders in the early stages of the Great Depression. In today’s Europe this regression takes the form of brutal austerity measures that drastically cut government expenditures and attack ordinary workers’ and citizens’ salaries and pensions. The ostensible purpose of these measures is to reduce government deficit and debt and to alleviate the sovereign debt crisis that is posing a threat to the future of the eurozone and the European project alike. In fact, however, these measures are proving counterproductive, thus leading to some debate even within the still dominant neoliberal camp. Against the ‘budget slashing’ neoliberalism favored by Angela Merkel and the European economic and political elites a more subtle ‘Keynesian neo-liberalism’ is making its appearance.
A recent New York Times editorial on the European austerity programs illustrates this alternative approach. The editorial begins by pointing out that two years “of unrelenting fiscal austerity … have brought [Europe] nothing but recession and deepening indebtedness.” As the editorial explains, this is due to the ‘growth-killing’ effect of ‘spending cuts and tax increases’ at a time of economic crisis. As the economy shrinks and unemployment soars, the editorial suggests, government tax revenues suffer, making the austerity programs counterproductive even from a narrowly fiscal point of view.