Regular readers know that pursuing the Japanese Model is the wrong choice as it has failed 100% of the time. Rather, governments should pursue the Swedish Model and require the banks to recognize upfront all the losses on the excess debt in the financial system.
Under the Swedish Model, the real economy and the social contract are protected as the capital needed for growth and reinvestment is not consumed in servicing the excess debt.
In his entertaining lectures at Columbia Business School, the economist Bruce Greenwald likes to employ cite the line often used by Warren Buffett: When the tide goes out, you can see who is not wearing a bathing suit. This is the feeling I have in Spain.
In year five of the financial crisis, I can see which of my relatives and friends had no swimming trunks.
The slow downward slide is horrendous for the people living it. Over and over we see the bewilderment of those who worked hard and paid taxes. They don’t understand why they are seeing their first-rate healthcare system being undermined, pensions and salaries cut, and their education system — still not up to par — being squeezed further, while being told they have to bail out the banks because that is what Germany insists on....Please recall that Germany's interest is in seeing that its banks get bailed out of the bad investments that they made and not in the economic well-being of Spain.
In this harsh new world, many people are now irrelevant to the daily functioning of the economy. Architects, graphic designers, book jacket designers–-these kinds of professions now seem like a quaint memory. No one needs them, and the fear is that, if and when the economy recovers, many won’t be needed then. The few friends who have jobs live with the threat of layoffs and repeated pay cuts....
Those who did the “right thing” and are managing can be smug — until they realize there are many others who did the seemingly right thing who are suffering.
The hollowing out of Spanish society continues. Anyone who can leave is doing so, and so Spain is losing the educated people it needs the most and who would be the basis of its future prosperity — if and when it does recover. The existence of a few bright spots does not mean that Spain’s economy is functional.
In the past, life was full of vicissitudes. Farmers always had work to do, but droughts, collapsing prices, disease, floods could leave them destitute — no matter what they did or how hard they worked. Markets didn’t provide the insurance that would insulate them from these risks.
As we moved from these primitive economies, the nature of risks changed. Now, it is individuals who face the prospect of no employment.
Governments need to step in and provide the kind of social protection that people want and need. We can’t simply throw up our hands and say we accept a society in which the only people who get jobs are those with MBAs who speak five languages.
When a few kids can’t get jobs, it’s not unreasonable to blame them: They didn’t study hard enough, they chose the wrong subject, they haven’t searched hard enough for a job.
When half of a country’s young people are unemployed, it’s no longer their fault.
Let’s be clear. Spain’s economy is in terrible shape and the reckless and irresponsible path of austerity the government is pursuing — a kind of austerity that is especially hard on those who are down and out — is already leading to social and political tensions and constant strikes and demonstrations. After all these years, it is astonishing that the Partido Popular has not learned a thing.