For the past two years most policy makers in Europe and many politicians and pundits in America have been in thrall to a destructive economic doctrine. According to this doctrine, governments should respond to a severely depressed economy not the way the textbooks say they should -- by spending more to offset falling private demand -- but with fiscal austerity, slashing spending in an effort to balance their budgets.According to Wikipedia, the term austerity is defined as an economic term referring to a policy of deficit cutting by lowering spending; often via a reduction in the amount of benefits and public services provided. Austerity policies are often used by governments to try to reduce their deficit spending and are sometimes coupled with increases in taxes to demonstrate long-term fiscal solvency to creditors.
NEW YORK ( TheStreet) - In an old Saturday Night Live skit, the Greek gods assemble to discuss the problems of modern Greece. Zeus calls in a consultant, a German god, Klaus, who vows to impose austerity, withholding any further money. The Greek gods retort: "Sorry Klaus. Either you give us the money or we take all of Europe down with us. We started democracy, we can end it." It is amazing in how life can imitate late night television.
The Syriza Party, the very left-of-center political party is currently leading in all opinion polls in Greece. Syriza is led by Alexis Tsipras, a 37-year-old who is doing his best Hugo Chavez impersonation on the national stage. Syriza is opposing all austerity measures. It is against the liberalization of the Greek labor market that places Greece according to the World Bank's Ease of Doing Business index at 100 out of 183 countries. The party opposes any type of reform from doing away with tax collection fraud, educational fixes including teacher's evaluations to reducing the size of the gargantuan Greek bureaucracy. The party's remedy to all Greek structural and economic problems reads like a Paul Krugman/Keynesian fantasy. The country should refuse to pay its debt, increase pensions and government spending, tax the rich, and hire an additional 150,000 new government employees. The groups support comes from the same base that support the Democratic Party here in the U.S., civil servants, lawyers, teachers, journalists and the easily swayed disenfranchised youth. Like the Saturday Night Live skit, Alexis Tsipras and Syriza are playing a Hellenic version of "chicken," where they reject any commitments and conditions made with their partner nations in the European Union. They are betting their European partners will never hold them to those commitments as that would force them to leave the European Union. A fear of an economic contagion striking Portugal, Spain, Ireland and Italy will hold the European partners at bay. Liberal economist and Keynesian advocate Paul Krugman wrote in his New York Times column, " Death of a Fairy Tale":