In poker, when a good player catches an opponent trying to bluff, the explanation often includes: “The story he was trying to tell me just didn’t make any sense.” In other words, the hand the bluffer was attempting to represent didn’t fit the actions he took leading up to the bluff. I thought of this when I read in the Wall Street Journal (here) that:
European Central Bank President Mario Draghi warned beleaguered euro-zone countries that there is no escape from tough austerity measures and that the Continent's traditional social contract is obsolete.
The reason I thought of the bluffer telling an unconvincing story when I read this was because for many people in the world, the story leading up to this statement goes as follows:
(1) We get pushed to the brink of the worst global financial crisis since the Great Depression of 1929 by a combination of fat cats taking excessive risks and complicit regulators refusing to oversee critical areas of the market while implicitly guaranteeing the fat cats’ losses.
(2) Somewhere on the way to holding the wrongdoers accountable, the script gets flipped and we are told the crisis is actually one of unsustainable safety nets. In perhaps the greatest twist in the story, those telling us that the crisis is now about over-spending also tell us that de-regulation is now a key component of the cure.
(3) Finally, the fat cats and their cronies in government tell the blue collar workers of the world that in order for crisis to be averted the blue collar workers must all tighten their belts. The fat cats and their cronies then get into their chauffeured limos and drive off to their gated communities to count the profits that their recently bailed out firms are generating.
Obviously, it would be hard for me to tell this story in a more lopsided way, but my point is not that the failure to regulate swaps, or the repeal of Glass-Steagal, is more to blame for our current difficulties than overspending. Nor am I trying to argue that imposing austerity measures on the middle class is an ineffective response. What I am trying to say is that perceptions matter, and that I fear that the perception of a large portion of the global population is that they are being told a story designed to bluff them into giving up a lot, while those doing the asking don’t appear to be giving up much at all. (For example, go here to read why Michael Moore thinks "America Is Not Broke.")
This is what I mean by NIMBY (not-in-my-back-yard) austerity, and this is a problem because it goes to legitimacy. When the people don’t believe their government has any legitimate basis for asking them to sacrifice, the response often comes in the form of riots like we are seeing in Greece. What the leaders of the world that are calling for austerity need to do is create a sense of shared sacrifice. I’m not sure how they best go about doing that, but I’m pretty sure it doesn’t include seeking sympathy for how tough it is to juggle a household staff, second home, and $50,000 vacation on a short bonus.