On the ‘Keynesian Neoliberalism’ of the New York Times

by Costas Panayotakis

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.

This is the reasonable, Keynesian, side of the argument advanced by the editorial.  And there is no better example of the impasse European austerity has produced than the country where the European debt crisis first broke out, namely Greece.  In Greece the austerity ‘cure’ has led to a prolonged depression that is expected to reduce the size of the Greek economy by more than 20%.  As this depression is accompanied by catastrophic levels of unemployment (more than 20% for the general population, about 50% for young Greeks), the austerity program adopted two years ago has failed spectacularly, recently making a second bailout package for Greece necessary.  And, as New York Times reporting indicates, other countries in the European periphery that have received rescue packages are also finding out that the austerity they have to adopt in exchange for these packages is proving similarly counterproductive.

The Keynesian conclusion that the New York Times draws from this debacle is that European leaders have to ease their inflexible commitment to austerity, exemplified most recently by a new European fiscal pact that is comparable to the economically insane balanced budget amendment that right-wing Republicans have long favored.  Against this renunciation by governments of ‘all fiscal tools for fighting recessions,’ the New York Times editorial advocates “bring[ing] back the sustained growth needed for long-term balanced budgets.”  The key to such growth, we are told, are “structural reforms like more open labor markets, lower pension costs and a more rational tax code”.

And this is where the neoliberal aspect of the alternative program the New York Times advocates shines through.  This is a program of deregulating labor markets and boosting capitalist profit by destroying the living conditions of ordinary citizens and workers.  What the Times editorial does not mention, however, is that these ‘structural reforms’ are integral to the austerity packages it criticizes and have contributed to their dismal failure.

In Greece, for example, neoliberal reforms of the labor market had been pursued long before the current crisis and certainly didn’t strengthen the Greek economy.  Their main effect was to increase inequality and economic uncertainty as the number of precarious workers, especially among the young, increased exponentially.  The opening of the labor market is now reaching a new level as it is required by the European Commission, the International Monetary Fund and the European Central Bank providing Greece’s rescue funds and dictating its economic policy.  In particular, collective bargaining is being liquidated, minimum wages are reduced by 20-30% and the combined result of the wholesale destruction of labor rights that go back almost a century is reduction in average wages that, for some occupations, are as high as 50%.  This dramatic collapse in the incomes of private sector workers, when combined with the layoffs and pay cuts facing public sector workers, predictably have reduced aggregate demand and led to the bankruptcy of tens of thousands of small businesses.  In other words, the idea that neoliberal ‘structural reforms’ will reignite growth is a fairy tale.

What the New York Times will not admit is that the current crisis in Greece and around Europe and the world is a crisis of the model of neoliberal capitalism that has been hegemonic ever since the post-war state-centered model of capitalism reached its limits in the 1970s.  The intensifying social and class struggles in Greece, Europe and beyond are fuelled by the ongoing effort to make ordinary citizens and workers pay for a crisis that they didn’t cause.  The outcome of these struggles will determine whether this crisis will further reinforce the neoliberal model responsible for this crisis or whether it will lead to an alternative way of organizing social and economic life that is more consistent with the needs, interests and aspirations of the majority.  The Keynesian neoliberalism of the New York Times does not represent an attempt to give capitalism a human face.  Instead, it is probably motivated by a fear that too much austerity could, by fanning the popular outrage over the way the crisis is being handled, put into question the survival of the neoliberal model beyond the present crisis.

Costas Panayotakis teaches sociology at the New York City College of Technology at the City University of New York and is the author of Remaking Scarcity: From Capitalist Inefficiency to Economic Democracy (Pluto Press).