The Revolt Against Austerity: 1776 vs 2015

by Dirk Ehnts, Econoblog101

I am at Bremen these days, spending time with the family, visiting parents and friends.  On our street we have an office which belongs to Germany’s conservative party, CDU (Christian Democratic Union). Its windows were smashed in some nights ago, blue paint was spread around.

Blue and white are the colors of Greece, and I am sure that the background of this vandalism is the euro zone crisis. Meanwhile, police arrested some right-wing extremist who entered the premises of the chancellor and threw a Molotov cocktail. Heiner Flassbeck, one of the few good German economists, has written a piece called “The Sleepwalkers“ earlier this month (in English), which ends with this paragraph:

Later generations will wonder why so few were willing to honestly analyse what happened in Europe during these fateful years. They will ask themselves how it was possible that so few had the courage to speak truth to power. It is easy to close our eyes to the responsibility of the powerful and to the carnage that they created. Everyone should ask himself or herself what their children are going to tell their children when they ask about the era when short-sighted politicians destroyed our hopes for a better life.

I must say that this analysis is not outlandish at all. The German anti-euro (the currency) party has now turned to extreme right-wing by getting rid of the founder, an economist from Hamburg. The media provides one embarrassing piece on Greece after the other, and dissent is not welcome. This is very sad, especially given that there is enough historical precedence from which lessons could be learned: the Brüning deflation with austerity policies in the early 1930s that led to the rise of Hitler, the debt that Germany was forgiven at the London conference in 1953, and now there is a piece at the NY Review of Books putting 1776 in context with 2015:

By 1763, however, Britain’s national debt had risen to £122 million, or over 150 percent of the Gross Domestic Product, and in the face of growing resistance to high taxes in Britain itself, the British government abruptly changed course. George III’s new ministers blamed the escalating debt and the punishing level of British taxation on Pitt’s aggressive global foreign policy and his unwillingness to have the colonies pay directly for the war effort. George III’s ministers were determined to end what they perceived as economic redistribution to the colonies at the expense of wealthy English landowners and the government itself. Instead of subsidizing immigrants, George III’s Prime Minister George Grenville announced the Proclamation Line of 1763, designed to limit the demographic expansion of the North American colonies. Instead of encouraging the colonies to trade with Spanish America, the ministry instructed the Royal Navy to prohibit any intercolonial trade. Rather than lowering customs duties in order to encourage commercial activity, the ministry passed the 1763 Hovering Act, which made it easier to enforce existing customs regulations. Instead of allowing the colonies to bet on future growth by printing paper money, Grenville passed the Currency Act of 1764, which forbade the colonies to emit any new currency. Finally, in 1765, Grenville ushered the American Stamp Act through the House of Commons, a measure that was designed in part to restrict the colonial land market.

The economic policies of Europe are not justifiable in terms of logic, history, economics or common sense. One wonders why they are executed at all. Time for my political economy course, I’d say.