Numbers released this past week show, once again, that the European Union’s economy failed to grow in the last quarter, making this officially the longest recession the EU has ever suffered. Numbers from America revealed a sudden, unexpected drop in manufacturing growth. Even now that the stock market has finally re-reached its post-crash heights, troubling indicators like this continue to appear, an uncomfortable reminder that the collapse of ’07 is still with us.

Behind the ugly numbers lies a raging debate about economic theory and policy. On one side, the followers of John Maynard Keynes, such as Paul Krugman, lead economist of the NYT. On the other, the beliefs of Hayek, Mises and the “Austrian School“. Keynes is renowned for his role in ending the first Great Depression through New Deal style spending, whereas Hayek prescribes what has come to be known as austerity – cuts, privatization and tax relief for the wealthy. Both of these sides are winning in their own way – Krugman is pretty blatantly winning the argument, while most of the world’s governments are still pushing austerity measures.

Losing the Argument
Among the strongest arguments for austerity was the landmark study, Growth in a Time of Debt, held up around the world as proof that a high debt:GDP ratio led to falling economic growth. Fortunes for authors Reinhart and Rogoff recently took a turn for the worse, though, when 28-year-old grad student Thomas Herndon took a close look for a class project and realized that the crux of the argument was based around a spreadsheet error in Microsoft Excel. He listed other methodological errors, of course, many of which had been pointed out before (and all of which should have been obvious). This humiliated many austerity proponents to the point where Stephen Colbert joined in the fun, and young Mr. Herndon has gone on to continue debunking Reinhart and Rogoff’s responses.

Other high-profile criticism of austerity has been coming from a surprising source – the International Monetary Fund. Leading officials, including Christine Lagarde, the IMF’s managing director, have started to urge restraint with austerity. Given the IMF’s history, this says a lot – they spent decades as the leading global proponent of Third-World austerity (“Structural Adjustment”), usually with similarly dismal results.

Perhaps most damning of recent condemnations has come from an entirely different unexpected source – the new Pope, Francis. His Holiness, in a recent address to foreign ambassadors, made his feelings quite clear; “The worship of the golden calf of old has found a new and heartless image in the cult of money and the dictatorship of an economy which is faceless and lacking in any truly human goal”. His speech touched on the “common good”, curbing speculation and focusing on the plight of the poor, themes echoed by many cardinals and, not surprisingly, the Greek Orthodox Church. Makes ya wonder, doesn’t it – if even the world’s most revered religious figure is talking about the “tyranny” of capitalism, why is it so hard for the rest of us to have a serious conversation about it?

These are only a few examples I could name – they’re quite well publicized if you know where to look – and it’s not as if the New York Times, IMF or the Pope are hard to find. Among those opposed to austerity are some of the biggest names in capitalism today and their arguments are quite well-founded in standard (capitalist) economic theory. It feels odd, as an ardent anticapitalist, to be taking a side at all, but it does help to give a little context. Even by their own standards, these policies aren’t working.

I’m no economist, but the flaws in this logic should have been apparent long ago. For starters, if the source of the European Debt Crisis was the high cost of “Eurosocialism”, then why were Spain, Italy and Greece most afflicted, and not Sweeden, Denmark and Norway (their merciless creditors)? How was putting thousands more out of work, cutting wages, increasing tuition and raising working-class taxes supposed to “stimulate the economy”? And, of course, how come the countries which worked hardest to implement these policies aren’t getting better?

The View From Below
What’s remarkable is how little of this filters down to the local level. When we look in our own newspapers (at least, outside the business section), it’s as if the only people objecting were camped in Zuccotti Park. Our politicians, even (sadly) those on the left, are similarly convinced about the need to pass “austerty budgets”. From the front page, or any television or radio station, it’s hard to tell there’s any argument about the economic merits of cutting, deregulating and downsizing, except from a few long-haired hippie socialists and ageing union leaders.

While economists are ignored, though, conditions on the ground have steadily worsened. Unemployment numbers, especially around youth have been at crisis levels in multiple countries for a while now, reaching even the point of public, politicized suicides. Greece in particular has been pushed to the edge of a total social breakdown by austerity, shown best by the frightening rise of the neo-Fascist Golden Dawn in Parliament and on the streets. Italy and Spain aren’t far behind, and the widespread breakdown in support for the EU itself has been dramatic. Parties on both the left and right are now openly expressing disdain and the future of the superstate itself is in doubt. If there’s one reason above all others that many capitalists are critical of these policies, it’s because they’re genuinely concerned that austerity will cause another collapse.

The effects of austerity can be charted in another way, as David Stuckler and Sanjay Basu just illustrated in their new book, The Body Economic: Why Austerity Kills. Stucker, a “leading expert on the economics of health”, with a host of ivy league credentials, decided to study the subject using the same “evidence-based” approach used when testing new treatments, only to award a failing grade. Their study found ten thousand additional suicides and up to a million extra cases of depression across North America and Europe since the austerity programs begam, and a 200% increase in Greek HIV rates. As far as positive effects of austerity go, when comparing different countries and policy responses, they find little evidence that austerity actually leads to more “growth”. Health care spending in particular, they argue, stimulates the economy far better than bailout cheques.

Why bother listing off the opinions of people I obviously don’t agree with on just about any other issue? Because they’re very important people as far as these debates are concerned. This brings up the very interesting question of why they’re having so little impact on policy or public debates. Part of it can be ascribed to the incredibly successful marketing of ideas that’s left many incapable of distinguishing between “economics” and the opinions of a radical fringe of right-wing economists. It takes more than propaganda, though, to sway the policies of so many governments. In spite of all the evidence, austerity is still going ahead, which tells us something about the real motives at work, and how power functions within this global Leviathan. Why embrace an economic strategy with such clearly devastating results? As the old saying goes; cui bono? Who benefits? How do they benefit? And how the hell were they able to accomplish it?

Is austerity a failure? That depends on the intent. If the point was to bring us back to “prosperity” then austerity measures have most certainly been a miserable failure. If the point was to shift capital flows toward a tiny elite of bankers and shareholders, it was largely successful. Corporate profits just had another record-setting year and thanks to the bailouts, the financial industry has rebounded nicely. Even the stock markets are setting record highs again. While most of us are suffering, a few are making off like bandits. To characterize this as a robbery, though, would be somewhat inaccurate. The bailouts were robberies – austerity is more of a racket. Rather than a one-time theft, austerity’s payments just keep coming in. At its core, austerity is a permanent shift in the way money and resources flow in our society. It’s not about bringing back “prosperity”, it’s about changing who prospers.

Behind both the profits and the suffering lies a clearly political, albeit still very economic motive. The two are never far apart, since both fundamentally come down to the many bargaining processes which rule our lives. Austerity entails shedding a lot of responsibility, public and private, for the well-being of workers. Shifting this burden alters the fundamental balance of power, allowing a few to gain far more leverage and thus make much larger returns. High unemployment and low welfare rates are classic examples of this – how much you get paid tends to come down to whether you could find a better paying job (or OW cheque) faster than your boss could find some desperate scab who’d work for less. For this reason, cuts anywhere tend to have reverberations everywhere and often gain a lot of political support from people who don’t seem directly affected.

There’s another dimension to this shift, though, which helps to explain why so many other capitalists are angry. Neither the state nor capitalism are monolithic hierarchies. Within each are a lot of competing individuals and factions. What’s good for banks isn’t always good for auto-makers, and what’s good for auto makers isn’t always good for retailers. Marx wrote long ago about the inherent conflict between “industrial” and “financial” capital, but this is only one of many examples. Some investors seek stable, long-term growth, while others look for large but risky short-term returns. Since most of the major players in finance these days are playing, primarily, with other people’s money, it’s obvious which they prefer (and why their clients are so annoyed). A lot of people in the business world held a strange fixation for Occupy Wall Street and often echoed support for its message. They weren’t calling for “class war”, though, just some stability to the current class system, a totally understandable response given the way bankers had recently lost their fortunes at the global craps table. These days, this is often articulated, ironically, in the language of GDP growth, also backed up by plenty of evidence.

As I’ve already mentioned, austerity is one of the only points where I agree, even partially, with Krugman or Lagarde. Nonetheless, I still feel the capitalist critique of austerity is very relevant here. It reveals a lot about austerity, but even more about capitalism itself. As for political strategy, I’d say there’s two big implications. The first, given this kind of widespread opposition, is that a political victory against austerity is entirely possible, maybe even probable. The second, though, is that it doesn’t end there. Defeating austerity alone is hardly a “radical” goal and in many ways would likely strengthen the status quo. That’s why so many capitalists support it, and that’s the inherent danger of reformist politics.

Austerity is like a fad diet – unhealthy, unsustainable and usually resulting in an actual weight gain. The national debts derided by austerity proponents skyrocketed most (especially in America) during the reign governments like Reagan and (either) Bush, who came to power pledging to eliminate them. This embezzlement continues not for any of the stated reasons – economic recovery, stimulating growth or brining “prosperity” – but because it benefits a few people in positions to sway public policy anyway. Above all else, it’s a frightening reminder that powerful people don’t need to win an argument to get their way, and it begs the more general question of why we allow these people to hold such power in the first place.