In response to another post, Magpie suggests that Peter Orszag take a holiday in Bolivia and start preaching his ideas there, walking through the poorest slum he can find in the middle of the night.
Maybe that would be good medicine for another neoclassical economist, Olivier Blanchard—to walk through the streets of Greece while the austerity policies he advocates are being imposed. In true neoclassical fashion, Blanchard recommends more fiscal tightening (based on spending cuts) and more export competitiveness (based on driving down wages)—while ostensibly “protecting the most vulnerable.”
Mihalis Panayiotaki, in the comments on Blanchard’s post, calls him on this—in effect, asking him to walk the walk.
No, it doesn’t. It does no such thing. People are lining up in soup-kitchens around Greece in numbers that were last seen during the Nazi occupation of the country. The homeless population has shot up incredibly, to well over 25.000 in Athens alone, in a country where such phenomena were marginal before the troika’s advent, half the flats in downtown Athens could not afford heating petrol for the winter, mental health is in disarray, as is special education, public hospitals are pricing a large part of the impoverished pensioners out of the public health system by demanding a 5 euro ticket. Meanwhile teachers and nurses (a rarity in hospitals anyway now) are on subsistence wages and the trend is towards even lower nominal wages despite the fact that in purchasing power terms we are already, even before the IMF mandated cuts in the minimum wage and the destruction of labor law to the point where a SE Asian dictator would be comfortable with, well below most EU countries. In the meantime, the rich have sent their profits (and they had made incredible profits in the decade before) to Swiss and Cayman Islands Banks, as well as the London real estate market.
So, no. The most vulnerable are left to the dogs.
Meanwhile, research being conducted inside the International Monetary Fund (e.g., by Laurence Ball, Daniel Leigh, and Prakash Loungani) demonstrates that the kind of austerity measures suggested by Blanchard tend to hurt labor and to leave capital untouched.
Even Poul Thomsen, an IMF official and a leading architect of the austerity program in Greece, has admitted that fiscal austerity have perhaps been too harsh.
Finally, Merijn Knibbe has demonstrated that Greece has already cut wages much more than any other country in Europe.
Economists like Blanchard can only talk based on the neoclassical models they use to interpret the world, in which fixing capitalism always comes to down to cutting social programs and lowering wages.
I wonder how long they’d last if they were required to walk the walk through the streets and neighborhoods of the countries in which their austerity policies are being imposed.