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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Five things we've learned from Labour conference

The party won't split, Corbynite divisions are growing and MPs have accepted Brexit. 

Labour won't split anytime soon

For months, in anticipation of Jeremy Corbyn’s re-election, the media had speculated about the possibility of a Labour split. But the party’s conference confirmed that MPs have no intention of pursuing this course (as I had long written). They are tribally loyal to Labour and fear that a split would prove electorally ruinous under first-past-the-post. Many still expect Theresa May to hold an early general election and are focused on retaining their seats.

Rather than splitting, Corbyn’s opponents will increase their level of internal organisation in a manner reminiscent of the left’s Socialist Campaign Group. The “shadow shadow cabinet” will assert itself through backbench policy committees and, potentially, a new body (such as the proposed “2020 group”). Their aim is to promote an alternative direction for Labour and to produce the ideas and organisation that future success would depend on.

MPs do not dismiss the possibility of a split if their “hand is forced” through a wave of deselections or if the left achieves permanent control of the party. But they expect Labour to fight the next election as a united force.

Neither the Corbynites nor the rebels have ultimate control 

Corbyn’s second landslide victory confirmed the left’s dominance among the membership. He increased his winning margin and triumphed in every section. But beyond this, the left’s position is far more tenuous.

The addition of Scottish and Welsh representatives to the National Executive Committee handed Corbyn’s opponents control of Labour’s ruling body. Any hope of radically reshaping the party’s rule book has ended.

For weeks, Corbyn’s allies have spoken of their desire to remove general secretary Iain McNicol and deputy leader Tom Watson. But the former is now safe in his position, while the latter has been strengthened by his rapturously received speech.

Were Corbyn to eventually resign or be defeated, another left candidate (such as John McDonnell) would struggle to make the ballot. Nominations from 15 per cent of MPs are required but just six per cent are committed Corbynites (though selection contests and seat losses could aid their cause). It’s for this reason that allies of the leader are pushing for the threshold to be reduced to five per cent. Unless they succeed, the hard-left’s dominance is from assured. Were an alternative candidate, such as Clive Lewis or Angela Rayner, to succeed it would only be by offering themselves as a softer alternative.

Corbynite divisions are intensifying 

The divide between Corbyn’s supporters and opponents has recently monopolised attention. But the conference showed why divisions among the former should be interrogated.

Shadow defence secretary Clive Lewis, an early Corbyn backer, was enraged when his speech was amended to exclude a line announcing that Labour’s pro-Trident stance would not be reversed. Though Lewis opposes renewal, he regards unilateralism as an obstacle to unifying the party around a left economic programme. The longer Corbyn remains leader, the greater the tension between pragmatism and radicalism will become. Lewis may have alienated CND but he has improved his standing among MPs, some of whom hail him as a bridge between the hard and soft left.

Elsewhere, the briefing against McDonnell by Corbyn allies, who suggested he was an obstacle to recruiting frontbenchers, showed how tensions between their respective teams will continue.

Labour has accepted Brexit

Ninety four per cent of Labour MPs backed the Remain campaign during the EU referendum. But by a similar margin, they have accepted the Leave vote. Jeremy Corbyn and John McDonnell, both long-standing eurosceptics, confirmed that they would not seek to prevent Brexit.

Owen Smith called for a referendum on the eventual deal during his leadership campaign. But with some exceptions, such as Angela Eagle, most of his backers have rejected the idea. Though 48 per cent of the electorate voted Remain, MPs emphasise that only 35 per cent of constituencies did. Some still fear an SNP-style surge for Ukip if Labour seeks to overturn the outcome.

The debate has moved to Britain’s future relationship with Europe, most notably the degree of free movement. For Labour, like Theresa May, Brexit means Brexit.

Corbyn will not condemn deselections 

The Labour leader could have won credit from MPs by unambiguously condemning deselection attempts. But repeatedly invited to do so, he refused. Corbyn instead defended local parties’ rights and stated that the “vast majority” of MPs had nothing to fear (a line hardly reassuring to those who do). Angela Eagle, Stella Creasy and Peter Kyle are among the rebels targeted by activists.

Corbyn can reasonably point out that the rules remain the same as under previous leaders. MPs who lose trigger ballots of their local branches face a full and open selection. But Labour’s intensified divisions mean deselection has become a far greater threat. MPs fear that Corbyn relishes the opportunity to remake the parliamentary party in his own images.  And some of the leader’s allies hope to ease the process by reviving mandatory reselection. Unless Corbyn changes his line, the issue will spark continual conflict. 

George Eaton is political editor of the New Statesman.