Amartya Sen's gormless normative econ

Normative economics means deciding which value judgments are better than others. Positive economics is about what is, not what ought to be. One way to build a bridge between values and facts is to say that every rational being would prefer such and such value judgment provided it also promotes the survival and burgeoning of Society. Thus we should focus on bringing about those factual states of the world which best embody or exemplify the best values compatible with the continued existence of Society.  An example would be uncorrelated asymmetries dictating  bourgeois strategies which are eusocial.  This is stuff like forcing debtors to scale back their spending by refusing to lend to them. The debtor may say ‘how come financially prudent people get to borrow whereas I, who really need the money to pay for drugs and prostitutes, get nothing?’. The answer is there is an uncorrelated asymmetry featuring a public signal that this debtor can’t pay his debts. That is why his credit has dried up. This may seem cruel but it is ‘eusocial’- i.e. Society is better off if financial improvidence is punished in this way.

To uphold conventional morality and private property and the rule of law is perfectly reasonable. It is also reasonable to provide things that everybody really wants or needs. The problem is that some people pretend that everybody values something which nobody actually does. Thus, there was a time, when everybody pretended that masturbation was really bad. It should be punished or cured. But people were being hypocritical. Wanking does no great harm. One just doesn't want to admit that one's hobby isn't really  rock-climbing or wind-surfing. It is actually playing with yourself. 

At one time some progressive academics used to pretend that what voters really want is economic equality. Also everybody lurves furriners. People want World Government. This was true only to the extent that the World Federation could put us in flying saucers and send us to explore distant Galaxies where we'd end up having sex with hot aliens with green skin. I suppose that's what Shashi Tharoor was hoping for when he joined the UN. But the place was boring and useless. 

Ten years ago, at around the time the EU got a Nobel prize for being as shite as Amartya Sen, the latter wrote an article for the New Republic on the European financial crisis- more particularly the predicament of Greece, Portugal, Italy, Ireland and Spain which had gone into the Euro overvalued and then borrowed too much because of the lower real interest rate they now faced. The other factor was the sub-prime crisis and the bursting of speculative bubbles of various sorts. 

What is remarkable about Sen's article is its vacuity. He is neither saying that Brussels should bail out the PIIGS nor that they should go back to having their own currencies which would allow them to devalue and thus get export led growth. He doesn't even propose some method of shielding the poorest from a 'haircut' or entitlement collapse. He pretends instead that the Europeans, like the Hindu Indians, had wanted political unification not economic integration. But Hindu India, like Muslim Pakistan and Buddhist Burma, had an Army and a national language and a strong center. Europe had nothing similar. There had been an Esperanto movement- i.e. the creation of a universal language, but it wasn't confined to Europe. There was also talk of a European Federation- but one where colonial Empires would be retained as 'Commonwealths'- which would slot into some sort of World Government. But talk was all it was. 

Europe did move towards greater pooling of sovereignty and an elected European Parliament. But national sovereignty remained. Countries were welcome to leave the Union. America has 'dual sovereignty' but it fought a Civil War to prevent secession. The European Union didn't have even 'dual sovereignty'. There was only national sovereignty subject to some, wholly revocable, pooling of sovereignty under a multi-lateral treaty. 

All this was as obvious ten years ago as it is now. Thus Sen's article is mainly of interest in that it shows how normative economics can become wholly mischievous if it falsely asserts that there is a widespread preference for something which nobody actually wants at all. 

Sen asks-
What Happened to Europe?

Parts of it got a common currency but some went in over-valued and then borrowed too much. This had nothing to do with
Democracy and the decisions of bankers.

In the rest of his article, Sen won't mention bankers or those who were supposed to be supervising those bankers- though that is what economists are supposed to do. 

The question remains, why did democratically elected Governments permit a speculative boom which was bound to end in tears? The answer is- because voters like feeling rich while politicians like lying to the public so as to get re-elected. Sad.


ABOUT FIFTY YEARS AGO, in 1961, Jean-Paul Sartre complained about the state of Europe. “Europe is springing leaks everywhere,” he wrote. He went on to remark that “it simply is that in the past we made history and now history is being made of us.”

Sartre was deeply stupid. He didn't get that the US was the protector and financier of Western Europe. The Continent had been divided. Europe would soon lose what was left of its overseas Empire. To be fair, Sartre wrote this in the preface to Fanon's 'Wretched of the Earth'. The joke here is that the Algerian regime could make its indigenous Islamists more wretched yet. 

 Sartre was undoubtedly too pessimistic.

No. He was simply late to the party.

 Many major achievements of great significance have occurred in the last half a century in Europe,

only if permitted or encouraged by the US.

 since Sartre’s lament, including the emergence of the European Union, the reunification of Germany, the extension of democracy to Eastern Europe, the consolidation and improvement of national health services and of the welfare state, and the legalization and enforcement of some human rights. All this went with a rapidly expanding European economy, which comprehensively re-built and massively expanded its industrial base and infrastructure, which had been devastated during World War II.

Thanks to the Marshall Plan and Bretton Woods and so forth. America was prepared to tolerate 'Socialized Medicine' etc. in Europe if this would keep the Red Menace at bay. 

There is indeed a long-run historical contrast to which Sartre could have pointed. For centuries preceding World War II, a lot of world history was actually made in Europe. 

European history was made there. Nothing else. European recovery in the Twenties depended on America playing 'extend and pretend' with its wartime debt which the allies wanted  to off set against reparations from the defeated powers. Once Wall St. pulled the plug, Europe was pushed down a repeat of 1914. 

And this generated much admiration, mixed with some fear, around the world. But the situation changed rapidly in the second half of the twentieth century. When I first arrived in Cambridge as a student from India in the early 1950s, I remember asking whether there were any lectures given on the economic history of Asia, Africa, and Latin America. I was told that there were indeed such lectures—and that they were given for a paper called “Expansion of Europe.” 

England was in Europe. English students viewed the world from a European perspective. Academia was much smaller then. 

That view of the non-European world would seem a little archaic now, 

not if you are European. Similarly Indians don't give a fart about medieval European history. China is more similar to us and Chinese history provides some useful points of comparison. 

not merely because the grand European empires have ended, but also because the balance of political prominence and economic strength has radically changed in the world. Europe is no longer larger than life.

This was obvious by 1943. Anyway, Europeans did better just selling each other smelly cheese and corked wine and battling over whose pop stars were shittier on Eurovision. 

There is, of course, nothing particularly remarkable—or lamentable—in the changing role of the different regions of the world. This has happened again and again. What is really striking is not the historical re-balancing of the different parts of the world, but the mess that Europe has managed to get into in the last decade or so, particularly over the last couple of years.

This is foolish. Some countries went into the Euro overvalued. They then had to have a shakeout and a haircut and so forth. A price was paid for profligacy. But there was no exit from the Euro. The bigger problem was Europe's refusal to seal its borders or develop a European Army independent of the US. But this will happen sooner or later. 

There is a lot of discussion right now—appropriately enough—about how Europe is going to liberate itself from its financial disarray, economic misery, and political chaos.

Naughty countries needed to learn their lesson the hard way. That's it. That's the whole story. On the other hand, some European countries- e.g. Italy and Belgium- seem to have dysfunctional political systems. Then there is Orban in Hungary were the opposite problem- a leader too entrenched in power- is causing anxiety.

“What to do now” is certainly an important issue today,

naughty countries needed to bite the bullet. 

 but “what not to do” is no less important in looking at Europe’s immediate past. 

don't listen to nutters like James Galbraith or Varoufakis. 

This is so not just because past mistakes are relevant in deciding on what to do in Europe

Nonsense! Past mistakes don't matter. Economics is ergodic. You can't go on fighting Fascism when no fucking Fascism obtains. 

 (even though what has been done cannot be readily undone—there is no automatic translation from past follies into present rectifications), but also because the negative lessons are essential if we are to avoid similar adversities in the rest of the world.

The past can only teach us that professors are as stupid as shit. Ignore them. Varoufakis was a Professor. Indeed a lot of the stupidest Greek politicians in Syriza were Professors of Econ. 


SO WHAT HAS GONE WRONG in Europe in recent years? 

Profligacy in some countries which went into the Euro overvalued meant a painful period of austerity. Britain did its own austerity and thus appeared in better shape than Europe. This encouraged the delusion that the country could go it alone.

I shall divide my analysis into three broad subjects: the challenge of European unity;

it turned out there were no big challenges. However excessive migration caused Brexit. But maybe the Brits had never been Europeans. I hear they have a Hindu for Prime Minister. Fuck is that about?

 the requirements of democracy;

there is only one requirement. They guy who gets most votes rules even if his name is Orban or Modi.  

and the demands of sound economic policy.

which just means getting the books to balance

 These are all related to each other, analytically as well as empirically.

There is no connection between them whatsoever. America stayed united even when some States defaulted on their debt. American unity was not affected by Jim Crow type disenfranchisement in the South or Huey Long type near dictatorship in Louisiana. The Great Depression did not represent 'sound economic policy'. None of these things are interrelated. 

The unification of Europe is an old dream. It is not quite as ancient as it is sometimes suggested—the dream is not of classical antiquity.

Caesar was plenty classical and antique. 

 Alexander and other ancient Greeks were less interested in chatting with Goths, Vikings, Angles, and Saxons

because they didn't exist at that time. 

 than they were in conversing with ancient Iranians, Bactrians, and Indians, and Julius Caesar and Mark Antony identified more readily with ancient Egyptians than with Europeans located to the north of Rome.

Oh dear. Nobody told Sen that Caesar invaded Britain. No doubt he thinks 'Gaul' is in Africa. Anyway, Cleopatra was Greek. Many of Herod's people spoke Koine- Second Maccabees was written in that language.

 But Europe went through successive waves of cultural and political integration, 

under Caesars. Kaiser is German for Caesar and Tzar is Russian for it. 

greatly helped by the powerful spread of Christianity;

the Pope could be considered the successor of the Caesars some of whom were Goths, Alan's, Teutons etc. Later, there was Clovis and Charlemagne and the Holy Roman Empire. 

 and by 1464 King George of Poděbrady in Bohemia was talking about pan-European unity. 

Bohemia was part of the Holy Roman Empire. 

He was followed by many others in the centuries to come, and by the eighteenth century, even George Washington wrote to the Marquis de La Fayette that “one day, on the model of the United States of America, a United States of Europe will come into being.”

There was a little guy named Napoleon who seemed to have some such plan. 


But it was the terrible sequence of the two World Wars in the twentieth century, with its floods of European blood, which firmly established the urgent need for political unity in Europe.

Did Sen really not notice that Europe was divided by an Iron Curtain? 

 As Auden wrote in early 1939, on the eve of World War II:

In the nightmare of the dark
All the dogs of Europe bark,
And the living nations wait,
Each sequestered in its hate.

plenty of dogs were barking in China and Korea and would soon be barking in Vietnam and Cambodia and Indonesia. But nothing came of it.

The events that followed only confirmed the poet’s worst expectations. The terrible fear of a repeat of what European countries had seen in the World Wars continued to haunt a great many Europeans.

How come it didn't haunt South East Asia which had suffered brutal Japanese occupation? Sen simply does not understand the economic motive for the creation of the EU. The relevant tool of analysis is 'Trade Creation vs Trade Diversion'. The EEA feared Trade Diversion but had to admit it was wrong. 

 It is important in this context to appreciate that the movement for European unification began as a crusade for political unity,

Fuck off! The French weren't saying 'we must unite ourselves to the guys who just spent four years shooting us and raping our women'. 

 rather than for financial unification and a common currency.

This is nonsense. The ERM and then the Euro was a way for more profligate countries to get lower real interest rates by piggybacking on the reputation of the Bundesbank. On the other hand, some ex Fascists- like Oswald Moseley- did speak of the political unification of Europe but only so the White Man could fuck over the African. 

The birth of the European federalist movement was motivated strongly by wanting a political unity free from selfdestructive wars, as the content both of the Ventotene Manifesto in 1941 and the Milan declaration of 1943 brings out very clearly.

Nobody, except maybe Sen's second wife, had heard of either. 

 There was no hostility to economic integration and not even to a financial union; but the uppermost priority was not banking and currency. It was peace and goodwill and a gradually evolving political integration. 

Sen wrote this 4 years before the Brexit vote. Frankly, if the thing hadn't been such a shambles, there would have been similar moves in France and Italy and so forth. However, just rolling back the powers of the EU Parliament will satisfy most people. Alternatively, a kick-ass Brussels which seals the borders and fields an impressive Army would win support- but this appears a distant prospect. 

The fact that political unification has fallen way behind financial incorporation was a later development,

No. Political incorporation was never on the cards. The question was whether there would be more 'pooling of sovereignty' and fiscal harmonization. Sen thinks the European Union is like the Union Government of India. But India has no 'dual sovereignty'. In Europe, it is entirely legitimate to speak of Scottish independence if not Catalan independence. All countries are welcome to leave the EU. 

 and the problems generated by that oddly chosen sequencing are not irrelevant to understanding the present economic crisis in Europe.

This is utterly mad. It is like pretending that the UN was actually about the political integration of the globe so as to create a World Government. What occurred in Europe was economic integration but it wasn't comprehensive. Some states opted for the common currency. Others did not. When the financial crisis hit, some debtor states argued that political integration had occurred and therefore the richer states should bail out the poorer ones. But this argument failed miserably. There was no political integration. What the states had signed up for was fiscal discipline and a surrender of economic sovereignty. Those who cheated or who were profligate or merely unfortunate paid a steep price. The EU, it turned out, was about tough love. 'Shape up or ship out' was its credo- not 'share and share alike'. 

One point is particularly important to note in this historical context, especially since it is often missed.

No such point exists. The terms for entry into the EU were clear. Countries had to meet targets and play by the rules. Those who failed to do so had to pay a steep price.

 The problems created in the euro zone by going for the integration of currency and a monetary union without the prior supportive presence of a closer political union and a fiscal union extend well beyond economic mishaps into social adversities in the relations between people in different European countries. 

No. Countries which cheated or were profligate or just unfortunate had to go through a prolonged shakeout and curtailment of entitlements or 'haircut' for savers, pensioners etc. 

Anger and frustration, in many different forms, have generated tension among countries with different fortunes within the euro zone, and have also empowered extremist politics of a kind that Europe expected to leave behind.

Had Europe cracked down on immigration in 2012, there may have been no Brexit. Sealing borders is not 'extremism'. 

There is nothing particularly surprising about the problems of balance of payments and other economic adversities that many of the European countries––Greece, Spain, Portugal—have faced, given the inflexibility of the euro zone restrictions on exchange rate adjustment and monetary policies.

What was surprising was Greece's mendacity.  It had cheated and then refused to take its punishment with the result that its punishment was prolonged. Ireland bounced back. Spain had a deeper structural problem with an inflated construction sector as well as its own separatist problem. Still, it adjusted. Italy is politically unstable- but so is Belgium. The UK's austerity program- with hindsight- was probably quite salutary. Sadly, it contributed to Brexit because the Brits thought they could go it alone and did not have to outsource fiscal discipline to the German dominated Eurozone. 

The consequent crises and rescues involving demands for draconian cuts in public services have also frayed people’s tempers on both sides of the divide. 

Then those draconian cuts went ahead and the voter understood that there aint no Santa Claus. 

They have strongly exacerbated internecine disaffections within Europe, as is clear from the political rhetoric coming in recent days in very different forms, from the north as well as the south of Europe—with pejorative anger targeted at objects of contempt that vary from “lazy Greeks” to “imperial Germans.”

Lazy Greeks had to suck it up. Imperial Germans were perfectly content for Greece to leave the Euro or, indeed, the Union. 


The often-invoked “analogy” with German sacrifices to achieve the unification of East and West Germany clouds at least some European thinking, and is thoroughly misleading.

German reunification imposed costs which forced Germany to embrace a 'Stability and Growth' pact. This meant it went into the Euro undervalued. Germany wanted the other countries to do the same. They didn't and paid a price. What muddied the waters was Germany's need for a bailout for its improvident Banks. But this was an internal transfer. Germany was never going to pay for 'lazy Greeks' out of some supposed sense of European solidarity. 

 This is partly

only

 because the sense of national unity that prompted the German sacrifice does not exist now between the different European nations,

Why the fuck would countries which were never oppressed by the Soviets need pampering? They made their own bed. Let them lie on it. 

 and also because the sacrifice in that remarkable exercise of national unity fell mostly on the richer part of Germany in the west, 

which gained a tangible benefit

not on the poorer areas as is being demanded now from many of the afflicted European countries, from Greece to Spain.

The German taxpayer got value for money for money spent in the East which increased the German tax-base. Why transfer money to foreign countries which won't yield your country extra tax revenue? 

The costs of failed economic policies

fell upon the voters who put fools or knaves in power. That's how democracy works. If you vote for nutters, your world turns to shit. 

 extend well beyond the statistics of unemployment, real income, and poverty (important as they are).

Nope. The cost of economic failure is economic- nothing more. 

 The grand vision of a union with a cementing sense of European unity is itself threatened by 

the fact that voters never wanted it in the first place. India wanted political unification and did try to promote an indigenous national language- Hindi. Europe did no such thing. Its unofficial language is English, though England itself has left. India may not be linguistically united, but it has a kick-ass Army. Europe may have some such thing ten or twenty years from now. 

what is taking place in the economic arena. Those who advocated the “unity of a European currency” as a “first step” toward a united Europe have

admitted that cheaters and profligates first have to mend their ways

 in fact pushed much of Europe into an entirely counterproductive direction for achieving European unity.

No. Europe could have proceeded apace with sealing its borders and creating an Army. It didn't because Europe's leaders were lazy and complacent. 

 There is, of course, no danger of a return to 1939, but, to use Auden’s analogy of the “dogs of Europe,” barking from sequestered regional bases of resentment and contempt does immense harm to the cause of cultivating European amity and unity.

Nobody gave a shit about that cause. You can't harm what does not exist. 

I TURN NOW TO DEMOCRACY. The founders of European unity whose ideas led the European movement wanted a “united democratic Europe.” 

Europe is as united and as democratic as its people want it to be. But, Europe will need a kick-ass Army if it wants to stay free. America won't fight its battles for it. 

The Europe that emerged from World War II had learned certain things from bitter experience that it was not going to forget. 

Don't invade Russia in winter. Also, America is richer and stronger than the whole of Europe put together. 

Perhaps the foremost idea was the importance of democracy, giving each person not only a vote but also a voice. 

Sen does not know that most European countries were already democracies though, in France, women only got the vote after the War. However women had voice long before they had votes as was the case with the rest of the population.  It should be remembered that Greece and Turkey joined the Council of Europe in 1949 itself.  There was no requirement to be a Democracy and no intention to pool sovereignty in the Council. There was a proposal for a European Political Union in 1952 but it failed to attract support. In 1957 the European Economic Community was created and that took off because money matters. Meanwhile the 'Western European Union', set up in 1954 remained dormant. NATO was what kicked ass militarily speaking. But NATO didn't care about democracy. 

After 1980 countries which had recently transitioned to democracy began being admitted to the EU. But this was a function of the ideological weakening of the Left as well as the decline of 'Corporatist' Employer's and Worker's Unions. Furthermore, since the EU is essentially a fiscal arrangement, relatively weak Parliamentary leaders needed to be in place. A strong leader, one bigger than his or her party, would be a threat. We can see this happening with Orban and Kaczyński testing the EU's ability to function. The bigger question is whether Europe can come together in the face of a Eurasian combine, led by China. Which side will global Islam- if there can be such a thing- come down on? 

If democracy in the form of regular elections is firmly instituted in the constitutions of most European countries, the commitment to have preparatory public discussion before making large policy decisions is no less ingrained in contemporary European values. 

Is that what happened during Brexit? Perhaps. I can no longer remember. But what Brexit showed was that public discussion bores everybody's tits off. Ultimately, any option is better than everybody repeating themselves endlessly. 

Walter Bagehot defined democracy as “government by discussion”—

No. He defined Parliamentary Government in that way. He was dismayed by the extension of the franchise to the better off workers in 1867. He considered the 'poor and stupid'- i.e. the great mass of the people- to be incapable of voting in an intelligent manner. Discussions amongst the smart and wealthy could lead to greater efficiency and adaptability. But deference on the part of the masses was needed for this discussion to be productive. ‘Once you permit the ignorant class to begin to rule you may bid farewell to deference for ever'- he warned. Sen, with typical perversity, pretends the guy wanted brown monkeys like us to have a voice and a vote. The British masses might end up putting a guy called Rishi Sunak in 10 Downing street. You can't tell me that wily Hindoo didn't bribe them all with poppadoms and a promise of 15 per cent off their first order of saag paneer. 

following a line of political analysis that John Stuart Mill had done much to clarify and to champion—

and the visionary leaders initiating the quest for European unity never wavered in this dedication.

This is nonsense. No fucking 'visionary leaders' in 1945 wanted to constitute a European House of Lords and a rotating European Monarchy or anything of that sort. Bagehot had the hots for Royals and Dukes and such like. Mill, more modestly, merely considered Indians to be ineducable brown monkeys. White folk might become worthy of the vote through education even if they didn't have a penis. 

Some of the policies that were chosen by the financial leaders and economic powers of Europe were certainly mistimed, if not downright mistaken; but even if the policy decisions taken by the financial experts were exactly correct and rightly timed, an important question of democratic process would have remained.

In which case, that important question would have been justiciable as, indeed, was the case with any genuine question which arose during the last decade.

 The decimation of something as fundamental as the public services that are essential pillars of the European welfare state could not be appropriately left to the unilateral judgments of central bankers and financial experts (not to mention the error-prone rating agencies), without public reasoning and the informed consent of the people of the countries involved. 

Public services were provided by Governments. They and they alone decided whether to expand or contract them. Bankers and financial experts might act in concert to raise the price of borrowing or stop private sector lending altogether. But Governments could always print money or reduce spending on Defense or Overseas Aid etc. Ultimately, they had to raise taxes and cut spending so as to bring down the debt servicing burden. 

It is true, of course, that financial institutions

like Scientific and Engineering Institutions 

 are extremely important for the success and failure of economies, but if their views are to have democratic legitimacy, 

they must be correct. If the financiers are wrong or the scientists are wrong then their views have no legitimacy whether or not a country is democratic. 

and not amount to technocratic rule, 

which only occurs if actual technocrats are ruling. But this may happen even in a Democracy. Look at Italy under Draghi- an Econ Professor and senior Civil Servant- who formed a Government during COVID.

then they must be subject to a process of evolving public discussion and persuasion, 

Draghi was subject to no such thing. There was no point. Either Parliament let him get on with a job or new Elections would be held. Let us see how long Meloni lasts. 

involving arguments, counter-arguments, and counter-counter-arguments.

which is what happens in playgrounds and bedrooms around the world. 

If democracy has been one of the strong commitments with which Europe emerged in the 1940s,

It wasn't. America had Western Europe. The Soviets had the East. Those parts of the West which had been previously democratic reverted to that status. Other parts didn't. 

 an understanding of the necessity of social security and the avoidance of intense social deprivation was surely another. 

No. There was an understanding of the desirability of contributory social security and the undesirability of incessant discussion. Emigration was the solution for intense social deprivation. The EU enabled people from agricultural shitholes to go work in big factories or become celebrity chefs or anything else they fancied.

Even if savage cuts in the foundations of the European systems of social justice had been financially inescapable (I do not believe that they were),

because there were no 'savage' cuts. Accountants are deeply boring people. Why pretend they are cannibals?

 there was still a need to persuade people that this is indeed the case, rather than trying to carry out such cuts by fiat.

Also, when people die, doctors and undertakers and clergymen need to persuade them that they are dead and should just stay put in their coffins.

The disdain for the public could hardly have been more transparent in many of the chosen ways of European policy-making.

Disdain for the dead is a big feature of European life. People should visit their dead relatives regularly to persuade them that they should stop attending office parties and drunkenly dancing the hokey-kokey. 

Quite aside from the question of democratic legitimacy, 

which is justiciable. The Court will decide if there really is a question and what needs to be done to 

there is also an important issue here of political practicality—the practice of the “art of the possible” that politics is meant to be. 

In this case, this would involve Treasury accountants and Ways and Means committees and other such deeply boring stuff. 

People could be denied their voices, but with democratic institutions they could not be denied their votes in periodic elections.

Or referendums. But votes can matter as little as voice. Markets vote with money. Sadly, money may not be forthcoming to finance an ever widening deficit. 

You can talk to your banker as much as you like, but if you have no money, sooner or later, you have no overdraft facility. 

 The people excluded from taking part in the process of policy-making could not be politically silenced, and in election after election the incumbent governments carrying out the dictates of the financial superpowers have been deeply threatened and sometimes summarily removed. 

But that changed nothing. Money dried up. Cuts were made. 

And voting rights without effective policy voices have also made it very difficult for practical solutions to emerge, with appropriate attention to well-reflected priorities and to acceptable compromises.

Only in the sense that discussion and a socially inclusive process of negotiation has not been able to stop the Grim Reaper. 

Public reasoning is not only crucial for democratic legitimacy,

Nonsense! Democratic legitimacy is a justiciable matter. No court would entertain the argument that X can't hold elected office Y just because 'public reasoning' did not feature in the election. 

 it is essential for a better public epistemology

No. Epistemology is not itself knowledge. Better verification is the only thing that matters. But, even where verification is lacking, considerations of utility or regret minimization would still drive behavior.

that would allow the consideration of divergent perspectives. 

Perspectives stop diverging after the evidence is in.

It is also required for more effective practical reasoning.

No. Practical reasoning can be wholly inarticulate. It is reflected in behavior, not what is said or what can become the basis for 'public signals'.

This is one reason why Public reasoning faces a signal extraction problem. How do we separate the informative from the strategic element in any statement? Politics, like poker,  is a game best played in smoke filled rooms. Indeed, where there is transparency, there is likely to be a bigger 'hold-out' problem. Also the stupider and more ignorant participants won't want to be seen as having been led by the nose. 

Bagehotian 'government by discussion' has nothing to do with public reasoning. It is likely to feature uncorrelated asymmetries absent public signals. Indeed, that is precisely the reason that 'bourgeois strategies' on the part of both the Tories and the Liberals led to a far bigger expansion of the franchise in 1867 that either had originally contemplated. The biggest kicker was the manner in which giving women the vote helped conservative causes- not to mention Prohibition. 

 It can bring out what particular demands and protests can be restrained in interactive public reasoning, in line with scrutinized priorities between a cluster of quite distinct demands. 

How? If there is freedom of expression, how do you 'restrain' some lines of reasoning? A bureaucracy might be able to do so but public reasoning in a democracy has no such option. What the European financial crisis, and later the Brexit referendum showed was that no demand or protest can be ignored by the self-appointed custodians of public reasoning. Instead, it is they who become irrelevant. 

This involves a process of “give and take” which many political analysts, from Adam Smith and the Marquis de Condorcet in the eighteenth century to Frank Knight and James Buchanan in our time, have made us appreciate better.

Giving and taking is better done far away from prying eyes or inquisitive ears. Condorcet is the joker in the above pack. He paid for his belief in public reason with his life. 

AND WHAT ABOUT the soundness of Europe’s economic policy-making? 

Policy making wasn't the problem. It was auditing and financial supervision.

There are two issues that arise immediately: the viability of the common European currency, the euro;

which has proved eminently viable. 

 and the policy of austerity—chosen by or imposed upon—European countries in financial difficulty.

profligacy was followed by austerity. That's how economics works. 

 On the first question, most of the attention has tended to be concentrated on the shortrun survival of the euro, through providing liquidity to the troubled countries, 

or ejecting delinquents. Germany would fund relief only while there was contagion risk for German banks. 

by one means or another. Many alternative rescue efforts are being considered right now, such as new bailout packages helped by the financially stronger countries, or the floating of guaranteed euro bonds, or the purchase of Greek, Spanish, and other high-interest bonds from troubled countries by Germany (thereby earning high interest, without much risk, so long as the euro survives in its present form).

The PIIGS had begun austerity and would eventually stabilize. Greece kicked at the pricks and had a prolonged recession. 

 Many of these “rescue” proposals are certainly worth considering and may prove useful, but none of the proposals address—or are meant to address—the long-run viability problem arising from the inflexibility of the exchange rate through the shared euro, even as countries with relatively lower productivity growth (such as Greece and Spain and Italy) fall behind other countries in the euro zone in terms of competitiveness in trade.

Land and Labor will have to get cheaper and cheaper in low productivity areas with or without the Euro. There is no question to address here. There is merely a fact of life.

 A country such as Greece may find that it has increasingly less it can sell abroad at the fixed exchange rate of the euro, unless what is not done by exchange rate adjustment is brought about by the brutal process of cutting wage rates—even in terms of the national currency—to an extent that would not be otherwise necessary.

Greece's national currency was the euro. Wages, pensions, rents, entitlements of all types- even savings- had to take a haircut. Greece had lied and gone into the Euro overvalued. What happened next was exactly the same thing which happens to any spendthrift. He has to learn to live on a much reduced income. 

In the absence of exchange rate adjustments, 

which were inflationary- which is why countries wanted to join the Euro. 

competitiveness for the countries falling behind can indeed be recovered through sharp wage cuts and other ways of cutting earnings, thereby reducing living standards more drastically than would be otherwise necessary. This would yield much extra suffering and an understandable resistance.

You can't resist being poor if no one will lend you any money. 

 There would also be political resistance to the other “solution” through increased migration of the population—for example, from Greece to Germany. 

Which the Germans welcome. Greeks are wonderful people. Greece paid for the education of these brilliant kids and Germany gets the benefit. That's a great deal from the German point of view.

A unified currency in a politically united federal country (such as in the United States of America) survives through means (such as substantial population movements and significant transfers) 

At most 5 percent of US GDP is redistributed between States. Republican States tend to be net beneficiaries. However, the biggest net beneficiary- New Mexico- is only favored because of military and research installations there. In other words, this is not really redistribution for the purpose of reducing income inequality.

that are not available to a politically disunited Europe.

The US has Federal tax, the EU does not. Sen does not mention that there were non-Euro countries which were part of the Union. Some were worse off than Greece.

 Sooner or later the difficult question of the longrun viability of the euro would have to be addressed, even if the rescue plans are completely successful in preventing a breakdown of the euro in the short run.

This does not appear to have happened. The EU response to COVID was shambolic. If an emergency of that sort could not get it to pull together, chances are it will never have Fiscal integration or even harmonization.

HOW EFFECTIVE is austerity, or drastically cutting public expenditures, in steering the countries in difficulty out of their immediate problem of excessive deficits and huge debts?

Quite effective, if you don't fight it. Greece tried to fight it and ended up worse off. 

 It is difficult to see austerity as a soundly reasoned economic solution to the European malaise today.

Only if you live- as Sen does- in cloud cuckoo land. 

 And it may not even be a good way of reducing public deficits.

That doesn't matter. What matters is that real wages, rents and entitlements fall. 

The policy package demanded by the financial leadership of Europe has been, despite its rhetoric, severely anti-growth. 

Growth based on borrowing money and pissing it against the wall isn't sustainable. 

The economic growth of the euro zone has been undermined dramatically, and the GDP there has been falling rather than growing—so much so that the recent report that there was zero growth in the euro zone in the first quarter of 2012 has been widely greeted as “good news.”

Ireland, the first country to go into recession, started to come out of it by 2013- thus fulfilling the 3 year agreement Ireland made with the Troika in 2013. Greece too was coming out of recession when Syriza came to power and created havoc.  

If Germany is taken out of the total, the result would be continued bad news of falling output for the rest of the euro zone. Spain, Portugal, and Italy continued to decline in these months, and while Greece tempered its free fall from a previous negative 6 percent in 2011, the Greek economy has lost nearly a quarter of its production since 2008. 

But a lot of that 'production' was fraudulent or foolish. 

While the economies and the people involved have suffered, the deficits have been quite resistant. The earning of public revenue is impeded by dampened—or negative—economic growth, and this directly cuts down the state’s ability to cut deficits.

This is a case of Ricardian equivalence. If the public sector runs a deficit, the private sector has to tighten its belt another couple of notches.


There is plenty of evidence in the history of the world that indicates that the most effective way of cutting deficits is to resist recession and to combine deficit reduction with rapid economic growth. 

By fighting a War- right? That involves conscription, exchange control, rationing etc. 

The huge deficits after World War II largely disappeared with fast economic growth in the postwar years.

Reconstruction and catch up growth is easy. There is a template to follow. However low raw material prices were also a factor. 

Something similar happened during the eight years of Bill Clinton’s presidency, when Clinton began with a huge deficit and ended with basically none. 

He substituted 'Workfare' for 'Welfare' and benefitted from the Tech boom and post-Cold War 'peace dividend'. 

The much-praised reduction of the Swedish budget deficit between 1994 and 1998 occurred in a period of fairly rapid growth of GDP. 

Sweden had a housing bubble in the early nineties which left banks insolvent. The Government took on the debt and gradually sold off distressed assets. Initially, about 4 percent of GDP was involved but the downswing of GDP itself was about 5 percent. Unconditional debt reduction- i.e. irrespective of impact on unemployment- was instituted from 1994 and showed good results by 1997. This 'inoculation' against bubbles enabled Sweden to weather the sub-prime storm very well. 

I suppose the lesson from Sweden was that the cost of a bailout needn't be very much if you take over distressed assets and then sell them on a rising market. However, you also have to have labor market reform and a balanced budget rule at the Local Authority level. This means a short sharp shakeout and rapid reallocation of labor (workers get low 'replacement' dole money and eligibility conditions are fierce)  thus permitting rapid recovery. In other words, this is a story of Government's taking over downside risk for the financial sector, then committing to unconditional fiscal probity which then means cuts in entitlements thus driving supply side reform in labor market. In other words, this is the opposite of 'welfarism'. The problem with this approach is that Sweden has since gone in for negative interest rates and its ageing population may face a bleak future.

The situation is very different today for many countries asked to cut deficits that are having zero or negative growth rates under an imposed discipline of austerity heaped on a recession.

Why? The fact is, austerity works. Swedes didn't need any discipline 'imposed' on them because Swedes are grownups. Greeks too were turning the corner when stupid economics professors like Varoufakis stuck their oar in. 

That austerity is a counterproductive economic policy in a situation of economic recession can be seen, rightly, as a “Keynesian critique.”

Sweden bailed out the financial sector- first nationalizing and then privatizing insolvent banks- such that there was no monetary shock. I suppose you could say this was 'Wicksellian' in a certain sense. The Government then tackled the deficit and, by Ricardian equivalence, the private sector bounced back. 

 Keynes did argue—and persuasively—that to cut public expenditure

rather than taxes, tariffs etc.

 when an economy has unused productive capacity as well as unemployment owing to a deficiency of effective demand would tend to have the effect of slowing down the economy further and increasing—rather than decreasing—unemployment.

Only if taxes had risen instead of falling. First there was the wealth effect caused by bank failure. Then there were massive tariffs whose real burden tended to rise. Finally, massive tax increases (the top rate rose from 25 to 63 percent in 1932) killed off the incentive to invest. Even the farmer was not spared. Roosevelt put in massive taxes on wheat and hogs till the Supreme Court struck down the Agricultural Adjustment act. Gold was confiscated and retained profits were subject to surtax. No wonder there was no recovery! Marginal rates just keep going up- they were 79 percent by 1935. There can be no Capitalism if wealth is confiscated. America's failure to recover from a mere Stock Market crash represented the failure of Socialism, not Capitalism. 

 Keynes certainly deserves much credit for making that rather basic point clear even to policymakers, irrespective of their politics,

Keynes didn't do shit. It was the War which restored full employment. Then voters rebelled against rationing and the free market gained an increasing role. Keynesians still tried to fuck up the economy but, by the late Seventies, voters started telling them to fuck off. 

 and he also provided what I would call a sketch of a theory of explaining how all this can be nicely captured within a general understanding of economic interdependences between different activities (emphasizing in particular the fact that someone’s expenditure is another person’s income). 

Which is why you should pay people to mug you. 

I am certainly supportive of this Keynesian argument, and also of Paul Krugman’s efforts in cogently developing and propagating this important perspective, and in questioning the policy of massive austerity in Europe.

Fast forward a few years, and Europe agreed with America that Krugman had shit for brains. He predicted 

1) in 2008, that Latvia 'was the new Argentina'. But Latvia didn't devalue. It 'frontloaded' the pain and emerged stronger than ever. Estonia had been even more macho. 

2) Krugman wrote 11 posts predicting the dissolution of the euro area between 2010 and 2012. But nobody exited it. Instead, Latvia, Estonia and Lithuania joined. Croatia too is set to join.

On the other hand, Krugman was right when he said 'by 2005 or so, it will become clear that the Internet’s impact on the economy has been no greater than the fax machine’s.

But I would also argue that the unsuitability of the policy of austerity is only partly due to Keynesian reasons.

Austerity is unsuitable if and only if increased Government spending will create a virtuous circle of rising Income and falling deficits. But, if such conditions exist, private borrowing would have the same effect. 

Suppose the Government pays for me to be scrubbed down, shaved, clothed in a business suit and transported to an office where I can do boring shite. Then the Government would get more Income tax out of me than it spent. This is because I'm good at doing boring shite. However, the Government didn't need to spend anything at all. My own desire to have money caused me to borrow money from the Bank and get an education and then buy a nice suit and then get a job doing boring shite. 

 Where we have to go well beyond Keynes is in asking what public expenditure is for

Public expenditure is for stuff the public wants just as private expenditure is for stuff which private individuals want. 

—other than for just strengthening effective demand, 

by weakening work and investment incentives- thus ensuring the country will be poorer in the future. 

no matter what its content. As it happens, European resistance to savage cuts in public services and to indiscriminate austerity is not based only, or primarily, on Keynesian reasoning. 

It was based on wanting something for nothing. 

The resistance is based also on a constructive point about the importance of public services

why not pay for them if they are so important? 

—a perspective that is of great economic as well as political interest in Europe.

It turned out that Europeans understood that you have to pay for stuff you want. Varoufakis & Co- being Econ Professors- didn't get this. Greece paid a high price for their stupidity.

THERE IS A CENTRAL ISSUE of social justice involved here—that of reducing rather than enhancing injustice.

by destroying the economy. 

 The public services are valued for what they actually provide to people, especially to vulnerable people,

so are private services

 and this is something for which Europe had fought. 

No. It had budgeted. 

Savage cuts in these services undermine what had emerged as a social commitment in Europe at the end of World War II,

Commitments don't matter. Budgets do. As workers began coming into the income tax net, this 'social commitment' declined from the Seventies onward. Still, some countries- like France and Spain continued to have a high percentage of GDP going on transfers. Both countries have a much much bigger black economy than the UK. Indeed, where relatively high 'replacement' rates exist, the benefit is likely to be confined to those in the formal sector. In other words, there is greater 'duality' in the economy. 

 which led to the birth of the welfare state and the national health services in a period of rapid social change in the continent, setting a great example of public responsibility from which the rest of the world—from East Asia to Latin America—would learn.

This is nonsense. America or the USSR were role models. Total Government Expenditure as a percentage of GDP in South Korea is just two or three percent above what France spends on transfers. 

In order to understand the inadequacy of Keynes as a guide to solving the European economic crisis, we have to ask: what kind of an economist was Keynes in terms of his vision of a good society?

He was a 'closed economy' export pessimist who thought the US would become a net food importer in the Twenties. 

 Keynes did say—famously, and accurately enough—that paying laborers to dig holes and then to fill them up can be a very good thing, 

It would be a very bad thing. The hole digging industry would expand at the expense of the productive sector. The smartest kids would be getting PhDs in Hole Digging Supervision. 

because of its impact on increasing effective demand to combat a recession or a depression.

If the thing was brought about by a 'wealth effect'- just repair the wealth effect by bailing out the financial sector. First nationalize insolvent banks, pay off the depositors, then sell shares in those banks on a rising market. 

 This is fine as far as it goes, but Keynes had extremely little to say on what social commitments a state should have—

back then people had, or pretended to have, bizarre beliefs. The Govt. would have ended up paying for programs to stamp out masturbation, miscegenation, homosexuality, and hysterical women who think they should get jobs as plumbers or even soldiers! 

what public expenditure should be for, other than for just strengthening market demand through state intervention.

What any type of expenditure should be for is ensuring that the Income will be available for that same level of expenditure to be maintained in future periods. Suppose you spend all your money on drugs. You end up an addict and too sick to go to work. You may still buy drugs but they will be of poor quality and you will also have to swallow a lot of jizz. 

On the other hand, if you spend money on classy suits and getting an MBA, you will soon be in a position to buy expensive watches and cars and houses to go with your classy suits. 

Keynes showed little concern about economic inequality, and was extraordinarily reticent on the horrors of poverty and deprivation. 

Fellow Etonian, George Orwell, had cornered that market. It must be said that Sen has been extraordinarily reticent on the horrors of poverty and deprivation faced by Hindus in East Bengal though he is himself a Hindu from East Bengal. 

He had little interest in externalities and the environment, and neglected altogether the subject that his rival and adversary A. C. Pigou concentrated on, which was The Economics of Welfare, the title of Pigou’s most famous—and certainly most profound—book. 

So what? Keynesian theory is itself about a consumption externality which works through Business Expectations. What Keynes could not say was 'cut taxes. Praise the rich. That will restore Business confidence'. Why? It was because Old Etonians were supposed to say 'Wealth is vulgar. Capitalists smell bad and have horrible taste. Socialism is totes what Socrates wanted coz then everybody would be able to suck off a navvy without having to pay for the privilege.' 

It was the allegedly right-wing Pigou who initiated the measurement of economic inequality, spent time on analyzing the nature and causes of poverty, wrote extensively on externalities and on environmental degradation, and stressed the need for public economics to aim at remedying the allocational errors of the market economy.

All of which is perfectly amenable to Marshallian analysis- though Sidgwick introduced the concept. Pigou's interest in Welfare Econ arose out of his support for Free Trade. The Tariff Reformers wanted to promote 'Imperial Preference' by linking it to 'Socialist' policies- on the German pattern. Pigou hoped to refute such arguments. The problem was that Marshallian analysis was dependent on diminishing returns. It couldn't deal with 'non-convexities'. Furthermore, unilateral Free Trade is inferior to negotiated trade treaties. Even if Free Trade is always best, spreading its practice by negotiation is better than walking the path of virtue by yourself. 

So the need to question current financial policies in Europe arises for economic reasons that go well beyond Keynes (while incorporating some important ideas of Keynes), in addition to the political and social reasons to which I have also tried to point.

There was one way to question austerity- viz. point out ways of spending which raise productivity and thus future revenue. Consider a family whose breadwinner quits work. Surely, they will have to tighten their belts? Not necessarily. The breadwinner may have got a place on Stanford's MBA program. His Bank Manager will happily give him a big overdraft. The family may start to live on a more ample scale in accordance with Friedman's Permanent Income Hypothesis. On the other hand, a guy who quits his job as a janitor so as to concentrate on watching TV might find it impossible to finance a more opulent life-style. He may complain that this is a 'social injustice' but that won't butter his parsnips.

This skepticism does not in any way question the need to recognize the importance of reducing, on an appropriate timetable, the burden of public debt. 

There is no need to recognize the importance of anything. Just tell academic economists to fuck off and things will improve. 

But good economics is not only about what to aim at

aim at the urinal, not at my shoe

, but also about what can be effective, and how and when.

Good economics is only concerned with the effective and the how and when. It isn't  concerned with aiming at what is infeasible. 

If we add to this economic argument the long-term concern in Europe about some form of social justice

Europe will have no long-term if it concerns itself with social justice. This is because smart people exit jurisdictions where they are fucked over. But nobody- except some Professors- is stupid enough to want the smart to fuck off. 

 and the more immediate political worry about the undermining of the European sense of solidarity, 

which was purely economic in nature. I suppose one or more of the PIIGS might have exited the Euro but, as the Germans kept saying, this would increase confidence in the Euro thus keeping real interest rates low and containing inflationary expectations. The only real danger was a rebellion by the German voter. Italy, it must be said, was a worry but it provided the ECB with Draghi- an Econ Professor, it is true, but not crazy at all. Italians, it must be said, are peculiar in that way. 

we can see what a disaster the recent European financial policies have been. 

Sadly, seeing austerity as a disaster precipitated a bigger disaster for Greece. It's like saying Heroin addiction is good. Rehab is bad.

The case for resisting the savage cuts in public services can hardly be ignored.

As is the case for resisting going to rehab. Daddy is very evil for suggesting it.

 This is not because the commitment to social justice must always be paramount, 

Heroin creates social justice. The aristocratic debutante and the hooker from the slums may end up dead in the same shooting gallery.

but surely it must be a serious concern that cannot simply be discarded by bankers and financial leaders. 

Proof of crack addiction should entitle one to a one million dollar overdraft. The capability to be a high functioning drug addict requires proper support.

There is, of course, always a need for rational scrutiny and examination of what a country can afford and what it cannot—taking into account all the relevant factors, including the changing age distribution of the population.

This need is met by Civil Servants who work on the Budget.

 But this is not the same question as checking what a country can afford with inefficient economic and financial management,

yes it is. Whatever conditions obtain are bound to be inefficient to some degree

 with fuzzy thinking on exchange rates and market demands and economic competitiveness.

because of Knightian Uncertainty- the fact that we don't know the future- thinking has to be fuzzy.

The guiding principle has to be, rather, what Adam Smith specified with clarity in The Wealth of Nations: how to work for a good functioning of the economy to be able to provide the public services that people agree are needed. 

Smith didn't specify shit. Why is Sen pretending that Scotland had a great economic management in the eighteenth century? Smith thought the parish should both raise and allocate all the funds for the amelioration of the poor. This is 'subsidiarity'. But ordinary people don't know and can't agree about what needs to be spent on defense and diplomacy and so forth.

Sound political economy, Smith argued, has to have “two distinct objects”-“first, to provide a plentiful revenue or subsistence for the people, or more properly to enable them to provide such a revenue or subsistence for themselves; and secondly, to supply the state or commonwealth with a revenue sufficient for the publick services.” Achieving the latter is just as much the goal of good economics as achieving the former.

Sen is too stupid to understand Smith who said-  'Political economy, considered as a branch of the science of a statesman or legislator, proposes two distinct objects: first, to provide a plentiful revenue or subsistence for the people, or more properly to enable them to provide such a revenue or subsistence for themselves; and secondly, to supply the state or commonwealth with a revenue sufficient for the public services. It proposes to enrich both the people and the sovereign.'

Smith is saying make sure the people grow enough food to feed themselves well. But food is not enough. You must encourage commerce so there's more money around. Parliament levies taxes and gives some of the money to the King so he can live large. 

The people are like sheep. If fed well they will provide not just meat but also wool which can be sold so that the Chancellor sitting on the Woolsack has more money to hand over to Kingypoo. 

Much has changed since the eighteenth century. Sound political economy now involves telling Academic economists and Virtue signaling activists to fuck the fuck off. 

Come to think of it, that's what happened to Smith & Co. England kept the Corn Law and the East India Company and so forth. Still, the Scots rose up by thrift, hard work and enterprise. 

Finally, and very importantly, the cause of necessary economic reforms has not been served by confounding that necessity with the policy of austerity. 

Austerity isn't enough. You need to fix the supply side. Do you have to bail out the entire financial sector? There probably was a better way forward in that respect. 

Indeed, serious consideration of the kinds of reform that are needed has been hampered, rather than aided, by the loss of clarity about the distinction between reform of bad administrative arrangements (such as people evading taxes, government servants using favoritism, banks being exempt from necessary discipline, or—for that matter—preserving a nonviable system of early retiring ages), and austerity in the form of ruthless cuts in public services and basic social security.

There was no distinction between the two save in that bad arrangements may survive though the entitlements underlying them collapse or are more and more arbitrarily rationed. 

 The requirements for alleged financial discipline

arose solely out of not having enough money 

 have tended to amalgamate the two, even though any analysis of social justice would view policies for necessary reform in an altogether different way from drastic cuts in important public services. 

This is like saying the addict's reluctance to go into rehab should not be amalgamated with the fact that he'd rather beg, borrow, or steal money so as to continue to take drugs. 

The problem with being an addict is not that one may not have enough money to buy drugs. The problem is that drugs are bad for you. True, if you have lots and lots of money, you may be able to continue to take drugs without winding up in prison or beaten to death by a loan shark, but that's 'a bug, not a feature' of the system. Spending beyond your means is untenable whether on not your method of spending is inefficient. A loss making enterprise may streamline its Accountancy department but if its Business Model is unviable it will still go bust or get taken over. 

A profitable enterprise or fiscally sound country may be as inefficient as it pleases. Once lenders are downgrading your credit, you have to either mend your ways or adjust to a much lower life-style. 

Even if that distinction may have been lost in rather crude financial thinking, opportunities for adequate public reasoning, in “government by discussion,” could have brought out its relevance clearly enough.

The opposite happened in Greece. Econ Professors like Varoufakis pretended that if the Greeks said 'no' to bailout conditions then they'd get more money. They didn't. They got less money and had to put up with worse austerity. Government by discussion fucks up if the discussion ends with the country doing stupid shit. 

Europe has been extraordinarily important for the world, which has learned so much from it.

Greece has been extraordinarily important. So has Palestine. But both have to pay their own way. Reagan imposed tough love on Israel in the early Eighties. It suddenly became economically viable which is why its neighbors stopped fearing it would try to conquer more territory in an attempt to gain sufficient revenue. 

 It can remain globally important by setting its own house in order—economically, politically, and socially. 

Greece has set its house in order. They are a remarkable people- though some posh Greeks who attended English Universities fucked up- and will be around millennia from now as a sovereign member of the Galactic Federation. 

The first step is to understand properly, with some clarity, the policy challenges that Europe faces today. 

Ten years later, we understand that the real challenge was posed by the rise of Putin's Russia and Xi's China. The War on Terror should have been ended by 2009. There should have been no support for the Arab Spring. Supply chains should have been safeguarded. Plans should have been made to deal with 'gain of function' virus outbreaks. As this miserable decade rolls on, all sorts of other such stuff will become apparent. Instead of spending like a drunken sailor, Europe should have been saving money for a rainy day and building up spare capacity to cope with likely, and unlikely, shitstorms. 

A failure to do so will reverberate far beyond Europe’s own borders.

No. The PIIGS problem had zero consequences in Europe and elsewhere. On the other hand, the EU's expanding to its East probably helped trigger the 2014 Ukrainian revolution which was followed by the annexation of Crimea by Putin. 

Ultimately, austerity can't hurt a continent. War can. Geopolitics matters. Virtue signaling about 'Social Justice' does not.