Manifesto of the Appalled Economists


Atelier Tee

From European Alternatives:

The world economic recovery, permitted by a massive injection of public spending into the economy, is fragile but real. One continent lags behind, Europe. Finding again the path of growth is no longer its priority policy. Europe has embarked on another path: the fight against public deficits. In the European Union, these deficits are certainly high – 7% on average in 2010 – but this is much less than the 11% in the United States. While American states whose economic weight is greater than Greece’s, such as California, are virtually bankrupt, financial markets have decided to speculate on the sovereign debt of European countries. Europe is in fact caught in its own institutional trap: states must borrow from private financial institutions, which obtain cheap cash from the European Central Bank. As a consequence, the markets hold the key to the funding of the states. In this context, the lack of European solidarity gives rise to speculation, all the more so when the rating agencies’ game accentuates the mistrust.

In order to “reassure the markets,” a stabilizing fund for the Euro has been improvised, and drastic as well as indiscriminate plans of cuts in public spending have been launched all over Europe. Civil servants are the first affected, including in France, where the increase of their pension contributions is a disguised cut of their wages. Social security benefits are severely reduced, from the Netherlands to Portugal, as well as in France, with the current pension reform. Unemployment and the lack of job security will necessarily increase in the forthcoming years. These measures are irresponsible from a political and social perspective, as well as a strictly economic one. This policy, which has temporarily brought down speculation, has already very negative social consequences in many European countries, especially on the youth, workers and the most vulnerable people. It will eventually stir up tensions in Europe and thereby threaten the European construction itself, which is much more than an economic project. A real democratic debate on economic policy choices must be opened in Europe.

All governments have had to improvise Keynesian stimuli plans, and even sometimes to nationalize banks temporarily. However they want to close this parenthesis quickly. The neoliberal paradigm is still the only one that is acknowledged as legitimate, despite its obvious failures. Based on the assumption of efficient capital markets, it advocates reducing government spending, privatizing public services, flexibilising the labour market, liberalizing trade, financial services and capital markets, increasing competition at all times and in all places… As economists, we are appalled to see that these policies are still on the agenda, and that their theoretical foundations are not reconsidered. The arguments which have been used during thirty years in order to guide European economic policy choices have been undermined by the facts. The crisis has laid bare the dogmatic and unfounded nature of the alleged “obvious facts” repeated ad nauseam by policy makers and their advisers. Whether it is the efficiency and rationality of financial markets, or the need to cut spending to reduce debt or to strengthen the “stability pact”, these “obvious facts” have to be examined, and the plurality of choices of economic policies must be shown. Other choices are possible and desirable, provided that the financial industry’s noose on public policies is loosened.

We offer below a critical presentation of ten premises that still inspire decisions of public authorities all over Europe every day, despite the fierce denial brought by the financial crisis and its aftermath. These are pseudo “obvious facts” which are in fact unfair and ineffective measures, against which we propose twenty-two counterproposals.

           PSEUDO-OBVIOUS FACT #1: 

“Financial markets are efficient”

           PSEUDO-OBVIOUS FACT  #2:

“Financial markets contribute to economic growth”

           PSEUDO-OBVIOUS FACT  #3:

“Markets correctly assess the solvency of states” 

           PSEUDO-OBVIOUS FACT  #4:

“Soaring public debt results from excessive spending” 

           PSEUDO-OBVIOUS FACT  #5:

“Public spending must be cut in order to reduce the public debt”

           PSEUDO-OBVIOUS FACT  #6:

“Public debt shifts the burden of our excesses on to our grandchildren”

           PSEUDO-OBVIOUS FACT  #7:

“We must reassure financial markets in order to fund the public debt” 

           PSEUDO-OBVIOUS FACT  #8:

“The European Union protects the European Social Model”

           PSEUDO-OBVIOUS FACT  #9:

“The Euro is a shield against the crisis” 

           PSEUDO-OBVIOUS FACT  #10: 

“The Greek crisis was a springboard towards an economic government of Europe and effective european solidarity”

“Manifesto of the Appalled Economists”, European Alternatives (PDF)