David Leonhardt’s fairytale of austerity
David Leonhardt, the Washington bureau chief of the New York Times, gives us his worldly insights today in an article entitled “The Gridlock Where Debt Meets Politics”. This is a sadly typical piece for Leonhardt, its essential argument being that the public needs to wake up and get used to the idea of austerity. We’ve grown so accustomed to this fairytale we often lose sight of how absurd it really is. Human society has never been as productive as today and it’s technology is advancing in tremendous quantum leaps with ever more powerful automation and robotics. Our standard of living should be extraordinary and papers throughout the world should be heralding the dawn of a new age of massive and ever rising prosperity. Not so, according to Leonhardt.
The fact is that most of the industrialized world — Europe, the United States, Japan, too — is in a difficult economic bind…. Most voters in these places have yet to come to grips with the notion that they have promised themselves benefits that, at current tax rates, they cannot afford. Their economies have been growing too slowly, for too long, to pay for the coming bulge of retirees.
But what can it possibly mean to say these nations can’t afford “benefits”, i.e. widespread prosperity, when there’s huge numbers of unemployed everywhere desperately seeking work? Leonhardt’s tale is objectively nonsense and becomes understandable only within the very warped logic of financial capitalism. Business finds insufficient “profitable” opportunities and therefore doesn’t invest its massively concentrated hoards and society therefore ends up with great un(der) employment and slow “growth”. But the people are still there ready to work, and technology has never been more powerful. The use of the word “afford” gives us insight into what’s really going on. Society, you see, must purchase “benefits” from those who own them and it can “afford” to do so only to the extent it offers a “profitable” return. The earth is a great casino for the owners, nothing more, and human society will be allowed to fall to the dark ages if the species becomes no longer profitable.
Leonhardt continues weaving the same sorry tale: “On the most basic level, affluent countries are facing sharply increasing claims on their resources even as those resources are growing less quickly than they once were… the slowing growth of available resources comes from a slowdown of economic expansion over the last generation.” We have nothing but misery ahead, he continues, and it’s so bad, we may not even be able to care very well for our parents.
“The combination has left Europe and the United States with frustrated populations that still have more sacrifices ahead. “These are very difficult moral issues,” said Benjamin Friedman, an economic historian at Harvard. “We are really talking about the level at which we support the elderly retired population.”
In one short paragraph, Leonhardt almost touches reality when he notes “the United States and Europe still have more than enough resources to solve their problems” but this would seem to contradict his earlier resource limitation argument and he quickly reverts to form and instructs us on the bitter medicine we must accept. “Longer term, the trap is created by resistance to the higher taxes and reduced benefits necessary to return countries to financial stability. The resistance is understandable, given how weak income growth has been in the past decade, but it is not sustainable.”
The central problem is that human technology and productive power is owned by a miniscule number of very wealthy individuals and shared with greater society only to the extent it’s “profitable”. Leonhardt is actually right in a very narrow sense about resource limitations. But it’s not because we lack resources, it’s that they’re tightly hoarded. To propose societies reduce living standards at a time of such technological prowess should be seen as outrageous and a direct admission that capitalism isn’t conducive to widespread prosperity. Leonhardt speaks on behalf of the powerful and against the interests of almost everyone. He should be both ridiculed and condemned.
Comments on Inequality 
Even Japan, with its aging population, has a chronic surplus of goods and intervenes to weaken its currency (subsidizing foreign consumption). At the same time, it is supposedly a “profligate” nation because of its budget deficit. This is crazy, but everyone is so brainwashed by the conventional wisdom that they accept the contradiction without thinking.
Yes, conventional “wisdom” & “economics”, like Leonhardt’s is just one big confusion between the nominal/financial/monetary & the real. Think solely in terms of one or the other, as Jim is doing, and you will get things right.
It’s a lot like something Oliver Sacks noted a long time ago in one of his books. He mentioned patients with different mental deficits – ones who had aphasia, but were able to read body language & expressions well, or one who had the opposite deficit, whose language and linguistic ability was very precise & logical, but to whom emotion was a closed book. It was impossible or very hard to lie to either sort of patient. Either the discrepant body language or the illogicality of a liar found him out. In order to be lied to, to be a victim of deception, one has to have a fully functional nervous system.
Similarly, to attain the level of nescience of mainstream economics, one must think about both financial & real things, but systematically confuse them in an obscure way. The mainstream relies on the listener’s faith that the speaker has some slight idea of what he is talking about, along with the listener’s embarassment about looking stupid for asking foolish, basic questions, glossed over in all the textbooks filled with trivialities, slovenly definitions, and unTheorems. With mainstream economists, the embarassed questions are forgotten, the absurdities & inconsistencies become unquestionable axioms, and they eventually become unable to perceive they are adding apples & oranges, adding 2 and 2 and getting 5, and heap ridicule on the laymen, the heterodox, the followers of folk economics, who are unable to absorb their confused hallucinations, because their minds work too well!
Good post, as always.
‘Society, you see, must purchase “benefits” from those who own them and it can “afford” to do so only to the extent it offers a “profitable” return.’
Well put. For much the same reason, I find claims that markets do a good job allocating resources to lack substance and amount to little more than ideological assertions. What is profitable, and therefore an attractor for money capital, is heavily dependent on how income is distributed. The sizable portion of the population that has next to no income has almost no market ‘voice’ and little to no impact on the allocation of resources.
Thanks Peterc. Your point is so true. It’s the beauty of capitalism that the rule of the wealthy can be portrayed as the technocratic operation of “the market”, with all its implications of fairness and simple exchange. All opposed to capitalism should stop associating it with “the market” since most of capitalism, a la Braudel, has nothing to do with markets.