Tuesday, January 4, 2011

Austerity in Modern History

"Those who cannot remember the past are condemned to repeat it" - George Santayana
On the Dylan Ratigan show, Mark Ames, founder of exiledonline.com, describes what happened in the Weimar Republic when they implemented the measures that the GOP are currently pushing in America::

"The incoming Republican congress is promising to deliver a megadose of austerity this year and the media and financial elites are telling us we need a major dose of austerity for our own good, whether we like it or not. But what none of the dictionaries or politicians or financial experts are telling us us is that austerity's been tried before -- many times, which might make you think "Oh great, so it's been tried and it works, right?" And that's where things get a little tricky. For example, one of the most infamous austerity programs was tried out in Germany in 1930 by Chancellor Bruning, one of those fiscal responsibility buffs who was sure that the answer to Germany's economic problems was to balance the budget and strengthen the currency by slashing unemployment benefits, pensions, and wages, hiking taxes, and sticking to the gold standard. The result: unemployment exploded, riots in the streets, the collapse of democracy, and the rise of Adolf Hitler. The rest is history. But hey, at least he got that deficit under control."
(Ames also added a further example that he witnessed first hand, the total collapse of the Russian economy in the 1990s after they implemented austerity measures.)

Republicans are fond of referring to the Weimar Republic whenever they're fear-mongering about inflation and advocating the ransacking of our social safety net. What they don't mention -- perhaps cannot remember -- is that the Weimar Republic coped with its inflation and stabilized its currency. It was not their hyperinflation that caused the demise of the Republic by descent into fascism.

Not that inflation was nothing. The hyperinflation was painful. And it was used politically. But the Republic survived the inflation itself, handled the situation, and got on with life after the hyperinflation with a currency that had been mostly stable for years after the reset of 1923/1924 established the Reichsmark. They didn't just achieve stability. The prosperity of the Roaring Twenties ran beyond the United States. In the latter 1920s, Germany also boomed after the hyperinflation under the Weimar Republic.

Then the Great Depression hit, giving the Nazi party more discontent with which to work. Then Chancellor BrĂ¼ning slashed and burned what remained of the German economy with austerity programs. In theory, austerity was meant to deal with the financial problems of debt and the Great Depression while avoiding a return to inflation. But it was those austerity efforts and their side effects that collapsed the Weimar Republic and the launched Germany into fascism.

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