Greece & Germany: Things tend to get worse before they get more worse

Cutting your nose off to incentivise your face to implement much needed structural reforms.

The young man stood up.
“Mrs. Bylaxis came in this morning,” he said. “She said the proverb you did for her last week has stopped working.”
Didactylos scratched his head.
“Which one was that?” he said.
“You gave her ‘It's always darkest before dawn.’ ”
“Nothing wrong with that. Damn good philosophy.”
“She said she didn’t feel any better. Anyway, she said she'd stayed up all night because of her bad leg and it was actually quite light just before dawn, so it wasn’t true. And her leg still dropped off. So I gave her part exchange on ‘Still, it does you good to laugh.’ ”

Terry Pratchett – Small Gods

Noah Smith points out that there’s an oft overlooked argument in favour of austerity. It’s a stupid one, but that doesn’t mean we shouldn’t take it seriously. The claim is that stimulus will work, but that is bad because it will delay “necessary” reform. This idea has a long heritage and it’s always been a good idea to mock it. I’ll try to provide some constructive examples against it.

First of all, let me say, I am a dedicated can kicker. Karl Smith is right: do you realise that everyone you know someday will die? The future is uncertain, so simply making a bad thing happen later is valuable because we might not be here. Problems sometimes solve themselves, and erstwhile solutions sometimes become problems. Pretending to have the foresight necessary to know when to say “you now must suffer now so that they then do not” is insulting.

I also think the idea is bad on its own terms. Crap policy begets crap policy for a number of reasons: most mundanely, I’d posit a correlation between following good short-term and good long-term policy. If a government is adopting crippling austerity now, it is more likely, not less, that they’ll be adopting bad long term policies.

But most importantly, this “butter tomorrow, sawdust today” policy has been tried before and sown disaster. Here are a few examples:

  • Hayek thought the depression would force down wages by brute force and trigger the end of unionised workers. He thus resisted efforts to end it. The result? Starvation! Smoot-Hawley! Nazis! Bet he felt pretty silly about that one.
  • He's in good company. Lenin in the 1900s argued that mitigation of the worker’s condition would delay the inevitable revolution and that nothing should be done to mitigate it. He actually got that one right. This time it was the Tsarist industrialists who must have felt silly (as much as dead people feel silly).
  • The little depression seriously derailed efforts to tackle climate change. Short-term suffering crowds out the long-term thinking needed to make policy effectively. Extending austerity makes it harder to talk about long-term sensible sacrifices because you’ve less to sacrifice.
  • As Ben Friedman argues “History suggests that, in the past, a rising standard of living has promoted tolerance for others, commitment to economic opportunity, and democracy. But stagnating incomes due to inequality can lead to the opposite outcomes.” Suffering makes people worse human beings and worse human beings make worse long-term policy.

To underline the point: the worst case scenario is Nazis. It is such a bad idea you can legitimately say “no because Nazi.” I can think of at least one positive counterexample too, also from Germany. As Scott Sumner points out, their labour market reforms of the mid-2000s took place against the most benign global and domestic macroeconomic circumstances imaginable. They were so successful that German unemployment continued to sink lower even as Europe was mired in depression.

Coincidentally, just as Noah Smith laid out the argument hypothetically, Steven Pearlstein comes along and positively endorses it. Only austerity and suffering can save Greece apparently. By embracing  short term suffering interest-groups can be defeated and illogical and burdensome regulations can be removed. Only brave short-term sacrifice can engender long term growth.

So how is Steven’s strategy paying off? Yep, same as last time, fucking Nazis again.

Even so, Greece is one of the few countries which spent the late 20th century moving from a middle-income to a high-income country. A round of applause please before you lecture them. Their politics and economy are dysfunctional and that will make them poorer, but it doesn’t need them to be in a depression. Being poor is bad, but being unemployed is evil.

Of course if unemployment is an evil, using unemployment as a punishment for being poorer than optimal is really evil. If the Greek economy is dysfunctional they should have higher inflation and lower real incomes, not suffer a manufactured unemployment crisis. It’s not just stupid and evil, it’s perverse.

It is a bad idea that policy should be actively destructive in the short-term to act as a bargaining tool or cudgel to implement a certain pet project. Suffering is bad, it makes us worse people and worse people make worse policy. If your leg does fall off, laughing isn’t the worst thing you could do; you could listen to these bozos.

This piece was originally posted on Left Outside, and is republished here with permission.

Members of Greek neo-Nazi party Golden Dawn sing the country's national anthem. Photograph: Getty Images
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Why the Liberal Democrats by-election surge is not all it seems

The Lib Dems chalked up impressive results in Stoke and Copeland. But just how much of a fight back is it?

By the now conventional post-Brexit logic, Stoke and Copeland ought to have been uniquely inhospitable for the Lib Dems. 

The party lost its deposit in both seats in 2015, and has no representation on either council. So too were the referendum odds stacked against it: in Stoke, the so-called Brexit capital of Britain, 70 per cent of voters backed Leave last June, as did 62 per cent in Copeland. And, as Stephen has written before, the Lib Dems’ mini-revival has so far been most pronounced in affluent, Conservative-leaning areas which swung for remain. 

So what explains the modest – but impressive – surges in their vote share in yesterday’s contests? In Stoke, where they finished fifth in 2015, the party won 9.8 per cent of the vote, up 5.7 percentage points. They also more than doubled their vote share in Copeland, where they beat Ukip for third with 7.3 per cent share of the vote.

The Brexit explanation is a tempting and not entirely invalid one. Each seat’s not insignificant pro-EU minority was more or less ignored by most of the national media, for whom the existence of remainers in what we’re now obliged to call “left-behind Britain” is often a nuance too far. With the Prime Minister Theresa May pushing for a hard Brexit and Labour leader Jeremy Corbyn waving it through, Lib Dem leader Tim Farron has made the pro-EU narrative his own. As was the case for Charles Kennedy in the Iraq War years, this confers upon the Lib Dems a status and platform they were denied as the junior partners in coalition. 

While their stance on Europe is slowly but surely helping the Lib Dems rebuild their pre-2015 demographic core - students, graduates and middle-class professionals employed in the public sector – last night’s results, particularly in Stoke, also give them reason for mild disappointment. 

In Stoke, campaign staffers privately predicted they might manage to beat Ukip for second or third place. The party ran a full campaign for the first time in several years, and canvassing returns suggested significant numbers of Labour voters, mainly public sector workers disenchanted with Corbyn’s stance on Europe, were set to vote Lib Dem. Nor were they intimidated by the Brexit factor: recent council by-elections in Sunderland and Rotheram, which both voted decisively to leave, saw the Lib Dems win seats for the first time on massive swings. 

So it could well be argued that their candidate, local cardiologist Zulfiqar Ali, ought to have done better. Staffordshire University’s campus, which Tim Farron visited as part of a voter registration drive, falls within the seat’s boundaries. Ali, unlike his Labour competitor Gareth Snell and Ukip leader Paul Nuttall, didn’t have his campaign derailed or disrupted by negative media attention. Unlike the Tory candidate Jack Brereton, he had the benefit of being older than 25. And, like 15 per cent of the electorate, he is of Kashmiri origin.  

In public and in private, Lib Dems say the fact that Stoke was a two-horse race between Labour and Ukip ultimately worked to their disadvantage. The prospect of Nuttall as their MP may well have been enough to convince a good number of the Labour waverers mentioned earlier to back Snell. 

With his party hovering at around 10 per cent in national polls, last night’s results give Farron cause for optimism – especially after their near-wipeout in 2015. But it’s easy to forget the bigger picture in all of this. The party have chalked up a string of impressive parliamentary by-election results – second in Witney, a spectacular win in Richmond Park, third in Sleaford and Copeland, and a strong fourth in Stoke. 

However, most of these results represent a reversion to, or indeed an underperformance compared to, the party’s pre-2015 norm. With the notable exception of Richmond’s Sarah Olney, who only joined the Lib Dems after the last general election, these candidates haven’t - or the Lib Dem vote - come from nowhere. Zulfiqar Ali previously sat on the council in Stoke and had fought the seat before, and Witney’s Liz Leffman and Sleaford’s Ross Pepper are both popular local councillors. And for all the excited commentary about Richmond, it was, of course, held by the Lib Dems for 13 years before Zac Goldsmith won it for the Tories in 2010. 

The EU referendum may have given the Lib Dems a new lease of life, but, as their #LibDemFightback trope suggests, they’re best understood as a revanchist, and not insurgent, force. Much has been said about Brexit realigning our politics, but, for now at least, the party’s new normal is looking quite a lot like the old one.