Wednesday, October 31, 2018

Amateur Political Economist and Austerity

Caveat: I am neither an economist nor a political economist, so I may be straying into territory that I know not.

Today's post by Dan Drezner about Angela Merkel came two days after I had a conversation with a German post doc who is hanging out at NPSIA this fall, and both post and conversation dwelt on the same basic issue.  Dan argues that Merkel, while getting much credit for being a pillar of the international order (liberal or whatever), her responses to the Greek crisis and larger financial crises of 2008 did significant damage to this order. 

When the post doc said she was planning a conference and wanted to build a theme around Germany's role in the world, and was at a loss.  That Canada's role in the world is as a peacekeeper--at least its self-perception, but Germany has just been restrained for seventy years.  I pushed back a bit, suggesting that Germany's brand was to fight inflation (and I should have included budget deficits).  That non-Germans have certainly noticed Germany's role in economic relations, compelling countries to spend less and perhaps tax more.

I have been arguing here and there that while much of the "populism" we see in Europe is due to the migration crisis, it is also a crisis of the parties.  That center and center-right parties pushed austerity plans that reduced the help given to people harmed by international economic shocks.  That left wing parties didn't do enough to fight such efforts and were sometimes complicit.  Which has left people dissatisfied with mainstream parties, causing them to look to the far left, far right or to opting out.

In the US, Obama did try to do stuff to cushion workers from the crisis, but he was fought at every step by the Republicans and didn't have sufficient support among the Democrats.  He probably could have done more.  Funny how the Republicans cared so much about budget deficits during a recession and not so much during an expansionary period.

Yep, I am a Keynesian.  I don't understand all of the negative consequences that come with the Keynesian toolbox, but the idea of counter-cyclical policies--of governments spending more during recessions--makes sense to me. That economists got taken in by a bad idea--austerity as a magic bullet--does not make sense to me.  That politicians on the right grabbed on to it makes perfect sense since they want to starve the government and make government spending less legitimate.  Note how the GOP is now back to caring about deficits and wants to cut the social safety net more rather than, dare I say it, reversing the monster tax cuts that have created these deficits.

Anyhow, I don't know Merkel's background and politics to know whether she was playing party politics, whether she was buying into the austerity fantasy, or whatever.  I do believe that she was generally a force for good in maintaining European unity in the face of Putin and now having to deal with Trump, even as I whined about Europe being too slow/weak in its response in the Baltics.

My first reaction to Merkel deciding to leave her post as leader of her party and putting a clear end in sight of her Chancellorship was that democracies must democracy--that turnover is necessary.  That we need to be cautious about betting on individuals rather than institutions.  The question now is whether German institutions will produce new leadership that supports the international order in ways that undermine it less, if that makes any sense.

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