A while back, before moving to Slate, the commentator Matthew Yglesias had what I considered a brilliant insight into the incentives facing small-country political leaders.
“Normally you would think that a national prime minister’s best option is to try to do the stuff that’s likely to get him re-elected,” he wrote in an article for Think Progress in 2011. “But in the era of globalization and E.U.-ification, I think the leaders of small countries are actually in a somewhat different situation. If you leave office held in high esteem by the Davos set, there are any number of European Commission or I.M.F. or whatnot gigs that you might be eligible for even if you’re absolutely despised by your fellow countrymen. Indeed, in some ways being absolutely despised would be a plus.”
How small does the country in question have to be? Maybe not very. See the article titled “Nicolas Sarkozy’s Road From the Elysée to Private Equity,” published in the Financial Times on March 28. As it turns out, Mr. Sarkozy’s money-making plans may be on hold due to a strange combination of legal troubles and the possibility of a political comeback thanks to President François Hollande’s timidity.
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But it remains true that John Maynard Keynes’s dictum — “Worldly wisdom teaches that it is better for reputation to fail conventionally than to succeed unconventionally” — is probably even more true for politicians than it is for bankers. And this probably helps to explain the persistence of the austerity cult despite years of failure.
Very Ernstig People
The Financial Times recently reported on the lonely life of an austerity skeptic.
According to an article published on March 31: “(Coen) Teulings’ (Central Planning Bureau) let loose with a report in March accusing Dutch politicians of ignoring a consensus among macroeconomists that cutting deficits does much more economic damage than usual during so-called ‘balance-sheet recessions,’ like the current one. Such contractions are driven by consumers and firms trying to pay down heavy debt loads, leaving government as the only actor in the economy still able to spend.”
It continues: “Mr. Teulings is not the only economist in the Netherlands skeptical of austerity, but he has been the only one with any policy influence. Prominent austerity skeptics at universities and big banks say they have been shut out, not just from government policy-making bodies but from the counsels of political parties on both right and left.”
Despite writing about all this stuff for years, I’m still amazed not just by the way policy makers threw basic macroeconomics out the window, but by the absolute unanimity of their turn to austerity. After all, the critics weren’t exactly invisible or inaudible; how could everyone serious be so sure that prominent macroeconomists were all wrong, and bureaucrats with no predictive track record were right?