Bobo has a question in “The Segmentation Century:” How do you govern a diverging world? The answer to that question might help in dealing with the economic crisis in Europe. Bobo should sit down with The Moustache of Wisdom so they can start on the same page of the playbook. The Moustache says the world is getting flatter and more homogenous… Prof. Krugman points out some home truths in “The Austerity Agenda,” and says in America and in Britain, the push for austerity is not really about debt and deficits. It’s about using deficit panic as an excuse to dismantle social programs. Here’s Bobo:
In 1949, Reinhold Niebuhr published a book called “Faith and History.” Niebuhr noticed a secular religion that was especially strong in the years after World War II. It was the faith that historical forces were gradually bringing about “the unification of mankind.”
Old nationalisms would fade away, many people believed. Transportation and communications technologies would unite people. Values would converge.
This optimistic faith was at the heart of many postwar projects, first the United Nations and then the European Union. The idea was to create multilateral bodies that would hasten the process of convergence, harmonization and peace.
Unfortunately, this moral, cultural and political convergence never happened. In the decades since, people in different nations, even people within nations, have become less alike in at least as many ways as they have become more alike.
The United States is a single nation with a common history, a common currency and a strong identity. Yet the country has become more polarized, not less. The country has become more difficult to govern, not less.
As communications technology has become more global, people’s tastes have become more parochial, not less. Ethan Zuckerman of the Massachusetts Institute of Technology notes in The Wilson Quarterly that 95 percent of news consumed by American Internet users is published within the United States, and people in many other countries consume even less foreign news than we do.
The failure of convergence is most striking in Europe. True, a tiny sliver of European society is becoming more transnational. But only 2 percent of Europeans live in a different European nation than their country of citizenship.
On the whole, European nations still have very different understandings of the rule of law and political order, different work ethics and conceptions of citizenship. If you look at the European Values Study, for example, you see stark values differences across the Continent.
Less than 40 percent of Danes believe that work is a “very important” part of their lives, compared with roughly 65 percent of the French. More than 80 percent of the Croats believe that a parent’s duty is to do what’s best for their children, even at the expense of their own well-being. Only about 55 percent of Germans agree.
The world feels different depending on what nation you’re in. According to Pew Research surveys, 73 percent of Germans think that economic conditions are good right now. In France, 19 percent think that, and in Spain it’s 6 percent.
If you look at the World Values Survey, you see that people in most Western nations are becoming more distrustful of their neighbors, not less. There are huge variations across nations, but levels of social and political trust have been declining almost everywhere except the Nordic countries. If there’s convergence, in other words, it’s in our increasing agreement that we don’t trust each other.
Today’s European economic crisis grows directly out of this segmentation. The euro crisis is not a crisis of debt. Total European debt levels are not that high. It’s a crisis of legitimacy. Debt burdens are divergent across nations, and Europeans with one set of habits and values do not want to bail out Europeans with other habits and values.
The fathers of the European project believed monetary union would bring people together. But when you jam nations with diverging values together, you only end up propelling them apart.
So we face the likelihood that the euro will crack up. This is not an outcome to be desired. The ensuing recession and chaos could be horrible on both sides of the Atlantic. But we should prepare for a crackup because the underlying sense of shared identity required for the euro’s survival is not there.
Regular Europeans are losing faith in the European project. Most Europeans now believe integration has harmed their economies. In all countries except Italy, majorities oppose giving Brussels more budgetary sovereignty, according to Pew Research surveys. The most popular major European politician is Angela Merkel, who is holding tough on more bailouts. She has 80 percent approval in Germany, 66 percent approval in Britain and 76 percent approval in France.
Europe continues to suffer from the same problem that has plagued it for the past half-millennium. There are too many nations in too small a space. There are no historical trends or technocratic schemes that are altering that basic flaw.
The larger issue is, how will the world cope with its own segmentation? How do you govern amid divergence? If multilateral organizations can’t bind nations, do we simply resort to an era of regional hegemons — or chaos?
The first step, surely, is abandoning the illusions of convergence and the schemes based upon them. In 1949, Niebuhr questioned the naïve belief that history drives toward unity. He cited the book of Psalms: “He that sitteth in the heavens shall laugh: the Lord shall have them in derision.”
Now here’s Prof. Krugman:
“The boom, not the slump, is the right time for austerity.” So declared John Maynard Keynes 75 years ago, and he was right. Even if you have a long-run deficit problem — and who doesn’t? — slashing spending while the economy is deeply depressed is a self-defeating strategy, because it just deepens the depression.
So why is Britain doing exactly what it shouldn’t? Unlike the governments of, say, Spain or California, the British government can borrow freely, at historically low interest rates. So why is that government sharply reducing investment and eliminating hundreds of thousands of public-sector jobs, rather than waiting until the economy is stronger?
Over the past few days, I’ve posed that question to a number of supporters of the government of Prime Minister David Cameron, sometimes in private, sometimes on TV. And all these conversations followed the same arc: They began with a bad metaphor and ended with the revelation of ulterior motives.
The bad metaphor — which you’ve surely heard many times — equates the debt problems of a national economy with the debt problems of an individual family. A family that has run up too much debt, the story goes, must tighten its belt. So if Britain, as a whole, has run up too much debt — which it has, although it’s mostly private rather than public debt — shouldn’t it do the same? What’s wrong with this comparison?
The answer is that an economy is not like an indebted family. Our debt is mostly money we owe to each other; even more important, our income mostly comes from selling things to each other. Your spending is my income, and my spending is your income.
So what happens if everyone simultaneously slashes spending in an attempt to pay down debt? The answer is that everyone’s income falls — my income falls because you’re spending less, and your income falls because I’m spending less. And, as our incomes plunge, our debt problem gets worse, not better.
This isn’t a new insight. The great American economist Irving Fisher explained it all the way back in 1933, summarizing what he called “debt deflation” with the pithy slogan “the more the debtors pay, the more they owe.” Recent events, above all the austerity death spiral in Europe, have dramatically illustrated the truth of Fisher’s insight.
And there’s a clear moral to this story: When the private sector is frantically trying to pay down debt, the public sector should do the opposite, spending when the private sector can’t or won’t. By all means, let’s balance our budget once the economy has recovered — but not now. The boom, not the slump, is the right time for austerity.
As I said, this isn’t a new insight. So why have so many politicians insisted on pursuing austerity in slump? And why won’t they change course even as experience confirms the lessons of theory and history?
Well, that’s where it gets interesting. For when you push “austerians” on the badness of their metaphor, they almost always retreat to assertions along the lines of: “But it’s essential that we shrink the size of the state.”
Now, these assertions often go along with claims that the economic crisis itself demonstrates the need to shrink government. But that’s manifestly not true. Look at the countries in Europe that have weathered the storm best, and near the top of the list you’ll find big-government nations like Sweden and Austria.
And if you look, on the other hand, at the nations conservatives admired before the crisis, you’ll find George Osborne, Britain’s chancellor of the Exchequer and the architect of the country’s current economic policy, describing Ireland as “a shining example of the art of the possible.” Meanwhile, the Cato Institute was praising Iceland’s low taxes and hoping that other industrial nations “will learn from Iceland’s success.”
So the austerity drive in Britain isn’t really about debt and deficits at all; it’s about using deficit panic as an excuse to dismantle social programs. And this is, of course, exactly the same thing that has been happening in America.
In fairness to Britain’s conservatives, they aren’t quite as crude as their American counterparts. They don’t rail against the evils of deficits in one breath, then demand huge tax cuts for the wealthy in the next (although the Cameron government has, in fact, significantly cut the top tax rate). And, in general, they seem less determined than America’s right to aid the rich and punish the poor. Still, the direction of policy is the same — and so is the fundamental insincerity of the calls for austerity.
The big question here is whether the evident failure of austerity to produce an economic recovery will lead to a “Plan B.” Maybe. But my guess is that even if such a plan is announced, it won’t amount to much. For economic recovery was never the point; the drive for austerity was about using the crisis, not solving it. And it still is.
