The financial collapse and recession that began in 2008 was immediately compared to the Great Depression. The austerity measures now being imposed on populations around the globe can be compared to the years that followed the collapse of 1929.
In the stirrings of unrest today we find parallels from the Dirty Thirties, particularly in what punishing austerity wrought in Germany. The rise of Adolf Hitler and the National Socialists began when a centrist chancellor, Heinrich Brüning, began to impose drastic austerity measures in 1930, a reaction to the economic crisis and the country’s stifling debt and reparations from the
First World War. In part as an effort to block the Nazis, he governed with emergency powers, imposed austerity plans over the wishes of the opposition and used the police to quell dissent. As the situation worsened, the country turned increasingly to the right.
In Greece and Italy, the leaders have stepped down, replaced by technocrats with ties to the very financial institutions that created the debt crisis overtaking the Eurozone today. Authorities are using the police to crack down on the Occupy movement, including those protesting in Toronto and Vancouver. Still, there’s a growing unrest around the globe as the inequities of the recession and the response to it continue to widen the gap between the haves and the have nots.
As economist Paul Krugman points out this week, it’s the 99 per cent that is paying the price for the often-criminal actions of the one per cent. He notes that the austerity that followed in the wake of the Second World War was taken stoically by the public, as it knew goods were in short supply and people had a feeling that they were all in it together, working for a brighter future. Fast forward six decades and that’s no longer the case.
“Today, by contrast, austerity is being imposed because men in suits say that it’s necessary to satisfy the invisible gods of the financial market,” he writes in his NY Times blog. “It’s understandable that the public is beginning to have its doubts, and not just because those invisible gods somehow demand sacrifices only from workers, never from the wealthy. For the fact is that those men in suits have no idea what they’re doing – a fact that was apparent to some of us early on, but it now becoming common knowledge.”
Krugman is probably being too kind: the men in suits likely know exactly what they’re doing: arranging a system that continues to pay off for the wealthy at everyone else’s expense. That’s why those who caused the financial crisis due to dodgy activities with derivatives and credit default swaps not only avoided jail time, but were rewarded with bonuses, promotions and government jobs/contracts. There was a fine example of that in the last week in the UK, where austerity measures have already taken a toll on the public: the Royal Bank of Scotland, owned by taxpayers since it was taken over to avoid collapse in 2008, plans to hand out $800 million in bonuses to investment bankers despite losing $1.8 billion last year, causing a political backlash that saw Prime Minister David Cameron forced to intervene.
Cameron’s right-leaning government has been ahead of the curve with austerity measures. The shift in tack has been taken by governments elsewhere. The connection between worsening economic circumstances and rise of right wing governments was established in a paper by two economists who contribute to the London-based Centre for Economic Policy Research. Markus Brückner, an economics professor at the University of Adelaide, and Hans Peter Grüner, chair for economic policy, Department of Economics, University of Mannheim.
“The global crisis has hit OECD nations hard – the hardest since the crises of the 1930s. As the Great Depression was associated with a rise in political extremism, the world may be facing similar political developments today,” they write in a recent study.
“Benjamin Friedman has argued that GDP per capita growth is a key factor for the development of a political system. His analysis, based on various historical case studies, points out that only a continuous improvement of individual living standards provides the ground for the development of what he calls a more ‘open’ society. Accordingly, it is not so much the level of GDP that determines the way in which a democracy develops but the growth rate.”
So, as the economy stutters, we lean right, bringing scapegoat politics and austerity measures that have failed miserably over and over again. In the worst cases, the worst kind of economic collapses brings out the worst in societies.
The economy is slowing down again – more confirmation of that this week from an Organization for Economic Co-operation and Development (OECD) study – yet the prescription is more austerity measures. However, such contractionary policies will only worsen the recession, as they have done time and time again.
Those who created the mess continue to prosper, however. They know what they’re doing. The rest of us learn nothing from history. And the beatings will continue until morale improves.