Europe tries austerity, but for real

In the eighties and nineties, the IMF, cheered on by the West, urged many poor economies to try structural adjustment programs that were very high in the austerity dosage for the patients. These were forced through by contingent loans call structural adjustment loans and basically dictated economic policy at the tip of a wad of expensive dollars. Put simply, it was a disaster. Countries in Africa and South America simply just fell apart further under the strain. People in these countries suspected malicious intent. Indeed, one of the many side effects, if not outright designs of SAPs was that formerly state enterprises were taken private and bought up for cheap by Western firms with a lot of capital. That and they largely didn’t work. Chalk it up to corruption; chalk it up to a lack of understanding of behavioral economics; chalk it up to political systems that were not the same as the assumptions in the labs where SAPs were cooked up. In the end it just. didn’t. work.

A lot of countries basically retreated from SAPs because there was more than a whiff of paternalism going on. Big monetary interventions like the Marshall Plan and Japan did not impose these adjustments. Recessions in the West were never really followed by the ‘global bank’ recommending austerity. After all these countries could borrow money cheaply to fund growth (IMF? Paff!) and were already ‘perfectly’ structured (by implication), thank you. In the intervening years, the mere mention of SAPs was enough to start rioting in the streets of many countries in the global south.

So color a lot of developing countries surprised when Europe’s reaction to a global recession was…Austerity. Double takes were heard all over Africa and South America, with heads audibly and rapidly snapping to the left or right, from a head on position. It is said in lore that an old legislator from Ghana died from a major bout of disbelief. It was peaceful. The IMF and the World Bank itself, which had been retreating from the heady confident days of SAP heavy and trending to SAP medium, went into full scale retreat on the issue in a matter of 2 years (see what motivation gets you? Piffle on the 20 years needed to figure out it doesn’t work in the global south either and the millions of lives ruined to validate an economic experiment…because you can). It concluded that Austerity is bad for the economy. Primarily for reasons us wonks call the falling of aggregate demand. It’s more complicated than that, but that’s a huge piece.

So fast forward to today and Europe is in crisis. Greeks are rioting in the streets, Italians and Spaniards are like “WTF?!”. The rifts between the poorer and wealthier parts of Europe are widening and the Eurozone itself is facing threat of break up. The Euro itself is under attack with likely defections if things don’t improve. But mostly the rest of the West and Asia are baffled and Africa and South America are half smiling in schadenfreude. And Mario Draghi is twiddling his thumbs while Eurozone unemployment skyrockets. It’s simply unbelievable to the ‘have not’ countries that this is the case. They had been thinking all along that this was basically a new form of colonialism, when in truth the Western countries (notably minus the US, no Austerity please, thank you) basically believed their own bull shit.