Quote from Ricter:
Actually, what the article is saying in essence is that under conditions like the current financial crisis, austerity has never worked.
Edit: if debt forgiveness became widespread a whole lot of moneylenders would have to get a job.
I agree that is what PART OF the conclusion is. It hasn't ever worked and can't work. It is the equivalent of the average family with income of $35K annual and credit card debt of $63K. And then to make matters worse that family's expenses are $38K annual.
To carry on the analogy a bit further, the family then decides to sell all autos because they can't afford them. The problem is that Dad now wastes 4 hours a day riding the bus, when he could've been working. This is what your article is referring to. For every $1 saved by selling the cars, $2 of potential revenue is lost that Dad could've earned by working another part time job.
They then drop their health insurance to save more money. But it only ends up costing them more in health care.
In reality, even with dramatic cuts it will take 30-50 years to dig out. It could be argued that the only realistic way to pay down the debt is for both adults to work at least 60 hours/week. This will require additional expenses like reliable and efficient transportation and daycare for the kids. So they feel that their only hope of reducing the debt would actually require increased expenditures is some very key areas. This is the Keynesian theory.
The other school says they should make dramatic cuts. But this requires lots of pain. They sell their 4 bdrm house and move into a 2 bdrm dirty apartment closer to work, and live off rice and beans. In the context of Greece, they live in poverty as a nation. No frills, while at the same time working 60 h/week until that $63K is down to a manageable $30K and their household income grows to $60K. This method would also work for Greece but they aren't willing to get that dramatic.
They are stuck in the middle of the two where neither plan has a chance at working. They aren't willing to make the kind of drastic and specific spending cuts necessary to fix the situation. At the same time they aren't good enough at management to figure out the best places to utilize additional stimulus money.
The only option left is bankruptcy. That is exactly what the article concludes as well. What it fails to mention is that if the family would've moved to correct the problem when they only had $30K debt, it could've been fixed without bankruptcy.
