Austerity, Corruption, and the Long Run

If you see corruption in the upper tiers of government as a major problem for an economy’s health in the long run (and the balance of evidence suggests that it is, at least at high levels in capitalist countries), then externally imposed austerity might be the only way to root it out. Syracuse prof Glyn Morgan passes along this story from Spain:

Rato, Castellanos and others jointly own a commercial lot near Madrid that is leased to a third party, according to Ayala’s Jan. 10 statement to the court. They also controlled a company together while Rato, 64, was running Bankia, Ayala said.

At the same time, Lazard billed Bankia 9.2 million euros ($12 million) for work either assigned or executed during Rato’s 27-month tenure at the bank, court documents show.

Their relationship exemplifies how a network of leaders from the governing People’s Party helped their associates among the financial elite to profit while the country’s savings banks, known as cajas, racked up losses. That toxic combination flourished during the boom fueled by Spain’s entry into the euro in 1999 and served to deepen the crash that resulted in a 41 billion-euro bailout of Spanish lenders, according to Jacob Funk Kirkegaard, a senior fellow at the Peterson Institute for International Economics in Washington.

Whether harsh spending cuts are a good idea or not for countries like Spain, Italy, and Greece depends in part on how one values the long run versus the short run. Also from the story:

“The things that we need to do to make Spain work require pulling the rug out from under the core interests of everyone” in power, Ken Dubin, a political scientist who teaches in Madrid at IE business school and Carlos III University, said in a May 22 telephone interview. “This is a political racket run for the benefit of politicians who suck the marrow out of the citizenry.”

2 thoughts on “Austerity, Corruption, and the Long Run

  1. Not everywhere, but truth is that in the majority of countries, the need of many citizens for a safe-haven, a Sherwood Forest, so as to escape from bad Prince Johns’ Sheriffs of Nottingham who, skimming them, just waste away fiscal income, surpasses by far the needs of all citizens for Robin Hoods able to skim some of the “filthy” rich.

    You have to make up your mind whether you are a Sheriff of Nottingham, or a Robin Hood, you can´t be both.

    Nothing as effective against tax-havens than tax-heavens

    http://perkurowski.blogspot.com/2012/03/my-tax-paradise.html

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