{"id":20450,"date":"2012-07-31T18:38:59","date_gmt":"2012-07-31T08:38:59","guid":{"rendered":"https:\/\/billmitchell.org\/blog\/?p=20450"},"modified":"2012-07-31T18:38:59","modified_gmt":"2012-07-31T08:38:59","slug":"europe-is-really-having-a-lost-decade","status":"publish","type":"post","link":"https:\/\/billmitchell.org\/blog\/?p=20450","title":{"rendered":"Europe is really having a lost decade"},"content":{"rendered":"

\t\t\t\tI am sick of reading about Europe’s lost decade. For example, in the UK Guardian article (July 27, 2012) – Spanish recession to last until 2014, IMF warns<\/a> – the economics editor Larry Elliot says that the IMF is “Predicting a lost decade of growth for the eurozone’s fourth biggest economy”. The lost decade terminology emerged to describe the experience of Japan in the 1990s after its spectacularly damaging property crash. But I think it is offensive to use the term in relation to the Eurozone crisis. We are not seeing a lost decade emerge Japanese-style. Rather, we are witnessing a self-imposed humanitarian disaster driven by the ideological arrogance of the Euro elites (aided and abetted by the OECD and IMF). The experience of Japan in the 1990s was nothing compared to what these elites are doing in the name of neo-liberalism. Journalists should stop making the comparison and, instead, call the current crisis in Europe for what it is.
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\nThe IMF Survey Magazine article (July 27, 2012) – Spain Needs to Deliver on Reforms to Stabilize Economy<\/a> – indicates that the IMF has learned very little from the crisis and is intent on getting back to business as normal as soon as they can – ignoring the devastation that the policies they advocate and force onto nations are creating.<\/p>\n

I thought the photo that accompanied the article was a disgrace (reproduced below). The caption read “Shoppers in C\u00e1diz, Spain”.<\/p>\n

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The Survey Magazine article accompanied the major IMF report (released July 2012) – IMF Country Report No. 12\/202 – Spain<\/a> – which reports on the bilateral discussions between the Spanish government and the IMF (part of the obligations of the IMF under its Articles of Agreement).<\/p>\n

The Report summarised the latest pernicious austerity program that the EU in partnership with the IMF have imposed on Spain. The July 10 recommendations from the EC amounted to a “loosening the targets for 2012-14” but what remains is still a vicious austerity program<\/p>\n

The Spanish government reacted like lapdogs and:<\/p>\n

1. Increased the VAT from 18 to 21 per cent (and pushed more low-rated products into the standard rate).<\/p>\n

2. Cut the December extra payment to public servants – “equivalent to nearly a monthly wage.”<\/p>\n

3. Reduce income tax deductions on mortgages.<\/p>\n

4. REDUCE<\/strong> the unemployment benefit to be paid.<\/p>\n

5. etc<\/p>\n

The IMF Report concludes that:<\/p>\n

\n… the new fiscal consolidation measures to have a significant impact on growth, especially in 2013. While the large role of indirect taxes should lead to a relatively low multiplier, preliminary estimates suggest that the level of output would be lowered by about 1 percent by 2014. Unemployment would also increase, although this might be mitigated by the effect of lower social security contributions and unemployment benefits, as well as the recent labor market reform. The VAT increase, combined with electricity price increases, will also lead to temporarily higher inflation.\n<\/p><\/blockquote>\n

The IMF are forecasting a modest return to grwoth in 2014 but on present form that is not a likely outcome. The unemployment rate will remain above 20 per cent at least until 2017.<\/p>\n

Study the above quote carefully because it tells you a lot about the IMF mentality. They know that slashing demand will cause the recession to deepen and endure at least for another two years. If the Spaniards thought this year was bad then the next will be worse.<\/p>\n

They also know that unemployment will rise. But then they come out – true to form – and insinuate that the increase in unemployment will be attenuated because people will react to the lower unemployment benefits in an adverse manner.<\/p>\n

Really? What will these people do instead? With jobs growth continuing to shrink and the probability of getting a job falling do they really think that the unemployed workers are choosing at the margin to be jobless or not depending on the level of the unemployment benefit?<\/p>\n

The reality is that cutting the unemployment benefit will make the recession deeper because the capacity of the unemployment to spend will be further compromised.<\/p>\n

Unemployment benefits support aggregate demand – albeit in a modest way given the level that is usually offered by governments to their most disadvantaged citizens.<\/p>\n

In a recession, if the government is unwilling to take the first-best option and directly create work to prevent unemployment from escalating, then the second-best option is to increase the unemployment benefit and give a boost to demand.<\/p>\n

The IMF also think that undermining the job security of workers (the “recent labor market reforms”) also reduces unemployment.<\/p>\n

The IMF clearly hasn’t been briefed on this by the OECD. In the face of the mounting criticism and empirical argument, the OECD began to back away from its hard-line 1994 Jobs Study position (which demanded widespread deregulation as the solution to unemployment).<\/p>\n

In the 2004 Employment Outlook, OECD (2004: 81, 165) admitted that “the evidence of the role played by employment protection legislation on aggregate employment and unemployment remains mixed” and that the evidence supporting their Jobs Study view that high real wages cause unemployment “is somewhat fragile.”<\/p>\n

Then in 2006, the OECD Employment Outlook entitled Boosting Jobs and Incomes<\/em>, which claimed to be a comprehensive econometric analysis of employment outcomes across 20 OECD countries between 1983 and 2003 went further. The study sample for the econometric modelling included those who adopted the Jobs Study as a policy template and those who resisted labour market deregulation. The Report revealed a significant shift in the OECD position.<\/p>\n

OECD (2006) finds that:<\/p>\n