I know that I am supposed to agree with Paul Krugman; and, for the most part, I do. However, I also have a nagging suspicion that more is at stake in German insistence upon austerity than immediately strikes the eye. Here Krugman approvingly cites Martin Wolf:
The German faith is that fiscal malfeasance is the origin of the crisis. It has good reason to believe this. If it accepted the truth, it would have to admit that it played a large part in the unhappy outcome.
While true, this ignores the preponderance of austerity wisdom throughout the global system and not simply among Germans. Which points to a deeper underlying rationale. Krugman has referred to this underlying rationale elsewhere under the heading “bond vigilantes.” But I unpack this phrase somewhat differently than Krugman.
Let us assume that price is sufficient to mediate supply and demand and that any interference in competitive markets—for example by not subjecting retirement, health, education, or housing to competitive markets—distorts price. Now, someone will say, no one in Germany or elsewhere in Europe is recommending such rigid market fundamentalism. No, they are not. They are, however, saying that the southern European members of the Eurozone should not have showered their citizens with such lavish social and economic supports and that it was because they did so that they now face a serious sovereign debt crisis. In the simple terms of market fundamentalism, there was not sufficient market growth to justify the outlays devoted to health, education, and welfare. And, had the price mechanism been allowed to operate freely in these nations, either economic growth would have stepped up to the plate, costs would have fallen, or services would have been denied—“naturally” denied by the market.
Instead, there was a total disconnect between non-market outlays and economic growth; which was fine with world’s lending institutions so long as the long-term economic growth was pegged to expanding financial markets in general and real estate markets in particular, but is not so fine now that we know that this projected growth was based on overvalued paper. Now that we have a more realistic assessment of actual growth (in fact, contraction), we can now see that Portugal, Greece, Italy, Spain, and perhaps France as well did not enjoy and will not enjoy sufficient growth to back their customary health, education, and welfare.
In other words, the PIGS miscalculated the price of their respective nation’s health, education, and welfare; and they miscalculated the price because these services were not pegged to actual market growth or contraction.
Austerity, in other words, is another way of making the most basic social services once again subject to market forces. The alternative—and it is not only the Germans who are saying this—is to (fill in your favorite moral invective) steal from Peter to pay Paul, spend more than you make, live beyond your means, expect a handout, und so weiter. Ja?
OK. So, how do we pay for health, education, and welfare?
Let us suppose that Germany’s relative economic strength was not only built upon the bill of goods that German banks sold to unsuspecting purchasers elsewhere in the Eurozone. Let us suppose that some of its economic strength is in fact a consequence of Europe’s free job market and liberal access to one another’s markets. German firms were able to set up shop anywhere they liked and to employ the labor of anyone they liked throughout the Eurozone. The neoliberal argument is that this freedom of movement of capital and labor worked to everyone’s advantage. And let us finally say that some of the strength of Germany’s national market arose from the technological advantage it enjoys in Europe. Germany was more efficient and more productive.
Where does that leave us? How do we pay for health, education, and welfare?
If we acknowledge that all parties throughout the Eurozone contributed to Germany’s economic strength, then I do not see how we can deny that (not on moral grounds, but purely economic grounds) Germany owes to other members of the Eurozone a return on their investment (of labor, land, resources, human capital and the like).
Yet, even supposing that Germany’s success and strength owes to the relative German’s hard work and industry (contrasted to the PIGS laxness and leisure), Germans need to wonder whether and why they might want sick, undereducated, disaffected and resentful Greeks, Italians, Portuguese, Spanish, or Frenchmen clinching their fists and shouting invectives against Germany.
Which pulls us back to price and to market fundamentalism. Germans will endure these clenched fists and angry shouts because it is only right and proper that social services be kept in line with economic growth; Germany has grown, they have not. And, so, it turns out, the Eurozone does appear to have been little more than a means for Germany to take advantage of the broader European market.