A piece at the Guardian blaming all the austerity in Latvia on the neo-liberals. As I commented there:
The method by which the EU\’s creditor nations and banks would like to resolve this crisis is \”internal devaluation\”: lower wages, public spending and living standards to make the debtors pay. This is the old IMF austerity doctrine that failed in the developing world.
No, it isn\’t. It\’s not even close to the IMF prescription.
The IMF always insisted upon devaluations of the currency. Still does in fact in those cases where people aren\’t stupid enough to have anchored themselves to a fixed exchange rate like the peg with the Euro.
The thing about Latvia (and the UK in 1992, as flatpackhamster notes), Ireland, Greece and so on, is that there has to be a devaluation. It could be a simple one, a devaluation of the currency, as the UK has done over the past couple of years (or as Iceland has). Or it could be a hard one, an internal devaluation, as has been forced upon Latvia, Ireland and as has to happen in Greece, Portugal and Spain.
The currency devaluation is much less painful, but if that\’s been blocked off for political reasons (\”We must build Europe!\”) then the internal devaluation is all that is left.
Note that this is nothing at all to do with neo-liberalism as opposed to Keynesianism. Fiscal expansion wuill do nothing at all to get such countries out of their bind: that wages are too high in comparison to the productivity of the labour force as compared to other countries.
There are two and only two alternatives: external or internal devaluation. And us neo-liberals argue very strongly that it should be external devaluation for it causes a great deal less pain all around.
This is,. as mentioned a couple of posts ago, simply the same old, same old. I shal;l assert that something untrue is true so as to hang an argument upon it. Forget the truth or not of my assertion, just look at my argument!
The neo-liberal answer to such problems really is external devaluation. So why in buggery are we being blamed when the non neo-liberals have blocked off this soution and thus insisted upon the internal devaluation which we neo-liberals think is a very bad idea?
A very bad idea for precisely the reason we\’re being blamed or it: it\’s fucking painful for an economy to have internal devaluation.