If you’ve seen The Matrix, you’re familiar with the scene when Agent Smith tells Morpheus that he’s tried to classify humans:
I’d like to share a revelation I’ve had during my time here. It came to me when I tried to classify your species. I realized that you’re not actually mammals. Every mammal on this planet instinctively develops a natural equilibrium with their surrounding environment, but you humans do not. You move to an area, You move to an area and you multiply… and multiply until every natural resource is consumed. The only way you can survive is to spread to another area. There is another organism on this planet that follows the same pattern. Do you know what it is? A virus. Human beings are a disease, a cancer of this planet. You are a plague, and we … are the cure.
In a similar manner one could be forgiven for thinking that far from being a macro-economic, let alone scientific, theory, neo-liberalism is a religion, built on faith and the rejection of facts. One related to Christian sects, even, promising a future reward as payoff for current suffering, without the need to actually deliver on this promise. The Christians point towards the afterlife, the IMF simply always a few years into the future, as Real World Economics Review points out:
It is already clear that Greece will not meet its deficit targets from this bailout, the main reason being that cuts to the budget have led to a much steeper recession than official forecasters had predicted. The Greek government now expects the economy to shrink 7.0 percent over the course of the year. That compares with the decline of 4.7 percent that the IMF projected for Greece back in April.
This was hardly the first-time that the IMF and other official forecasters had badly under-estimated the severity of Greece’s downturn. In April of 2011, the IMF had predicted that Greece’s economy would grow 1.1 percent in 2012, after shrinking just 3.0 percent in 2011. In fact, Greece’s economy shrank by almost 7.0 percent in 2011. And, in April of 2010 the IMF was projecting that Greece’s economy would be on a slow and steady growth path in 2012 after shrinking by just 1.1 percent the prior year.
As long as no one calls the IMF (and numerous other predictors) on their continued mis-estimation, they remain in a position to dictate the terms of the discussion. What’s needed is a couple of heretics who reject the religious illusion for happiness here and now. Like Argentina:
In the case of Argentina, another country that defaulted and broke the supposedly unbreakable tie of its currency with the dollar, the transition period was less than six months. It defaulted in December of 2001 and was on a robust growth path by the summer of 2002. It had regained all the ground lost due to the financial crisis by the summer of 2003 and continued to have solid growth until the worldwide economic crisis in 2008.
The following graph uses OECD Real GDP data to compare how the current crisis in the four worst-hit EMU nations compares with the crisis that Japan experiences when its property market collapsed in the early 1990s.
The indexes are set to 100 at the respective real GDP peaks and then trace the evolution of the economies in the quarters that preceded the peaks.
The respective peaks in real GDP were September 2008 for Greece; March 2007 for Ireland (hence the longer time series); December 2007 for Portugal; March 2008 for Spain and March 1993 for Japan.
Why did Japan perform much better even though its property crash was probably larger than that experienced in Spain or Ireland in recent years?
First, it has its own currency and its own central bank.
Second, it floats the yen.
Third, it used budget deficits deliberately in the early 1990s to buttress aggregate demand. In fact, despite the massive property crash and the retreat of private investment, Japan only had a mild recession – with real GDP growth declining in June 1993 (-1.1 per cent) and September 1993 (-0.5 per cent). There were other quarters during this period where negative real GDP growth was recorded but never two successive quarters of negative growth.
In fact, the next recession, larger than in 1993 came in 1997-98 as a result of the conservatives forcing fiscal austerity (tax increases) on the government as the budget deficit rose.
Once the austerity was reversed in 1998, the economy resumed growth relatively quickly.
Fourth, the rise in unemployment was held down because the government prioritised low unemployment.
Greece could follow Argentina’s example, the EMU (and the US) could follow Japan’s example, in fact, none of the austerity terrorism with its negative effects on people’s livelihoods and standards of living would need to occur at all.
IF we reject neo-liberalism’s false religion and make evidence-based decisions.