On May Day there were riots in Greece in protest of the ruinous austerity imposed by the European Union and the International Monetary Fund. Eurostat, the official European statistics agency, announced Tuesday that unemployment had hit a new high of 19 million. Youth unemployment on a continent-wide basis is now at 25 per cent. The austerity imposed by the European Union has ruined countless lives, driven pensioners into grinding poverty and halted or reversed the life-plans of millions of families.
In the United States, economic recovery is stalled by “the sequestration” agreement, millions have lost their homes and future prospects because of foreclosure, employment growth has left long-term unemployment untouched. And last week, a major study used to justify policies of austerity has been proved to be premised on erroneous calculations and the authors, Carmen Reinhart and Kenneth Rogoff, forced to admit that, in fact, re-calculation showed that, contrary to their initial findings, during fiscal downturns stimulus spending actually results in modest economic growth—that contributes to debt reduction.
In a New York Review of Books essay on David Graebner’s Debt: The First 5000 Years, “The Debt We Shouldn’t Pay,” American Prospect co-editor Robert Kuttner argues that the public debt Europeans and Americans alike are being asked to underwrite is not due, on the whole, to excessive government spending, but rather, whether the case is Ireland, Spain, Iceland or the U.S., due to government assumption of private, speculative debt.
Demands for austerity rise out of a simplistic moral tale that says, “People pay their debts.” Beginning with the biblical jubilee legislation and reforms of Solon in 6th century BC to the reform of British Poor Laws, modern bankruptcy protection and debt forgivenesse, the real story is more complex. The war debt imposed on Germany after World War I helped lead to the Great Depression, whereas the Allies’ debt forgiveness of Germany after World War II led to the German economic miracle. The problem of present-day austerity, Kuttner argues, is that private individuals and sovereign (national) debtors are required to pay the piper, while the corporations and financiers whose speculation caused the fiscal crisis are made whole and allowed to go free.
The lesson is that there are moral and political limits to indebtedness and a history of feasible alternatives to the present impasse, so costly in human terms. Read Kuttner yourself in the May 9 New York Review of Books.
Drew Christinasen, S.J., is Visiting Scholar, Boston College, and beginning in January 2014, Distinguished Professor of Ethics and Global Human Development at Georgetown University.