The implosion of austerity and the stupidity of the investor class

Data source. Just over a week ago I detailed the destruction wrought by the economic austerity imposed by Europe's conservative governments, with millions of people having been driven into unemployment and poverty and whole economies being suffocated. Today's news adds to the story, and underscores the incomprehensible stupidity of the clueless investor class.

In political news, the French seem ready to elect Socialist Francois Hollande to be their president, although much of the news coverage has focused on the rise of far right racist Marine Le Pen, who received nearly 18 percent of the vote, nationwide. Hollande has campaigned against the austerity that has stifled the French economy, with stalled factory output and declining business confidence, and ten consecutive months of rising unemployment. Le Pen is the French version of the tea party Republicans, mixing racism and xenophobia with economic populism, and her modest (and somewhat overblown) success represents the inevitable embrace of extremism by some voters in the face of economic uncertainty. But the political implosion of French President Nicolas Sarkozy is proof that the French overall are ready to try a new economic approach.

In Holland, meanwhile, the center-right government of Prime Minister Mark Rutte on Monday tendered its collective resignation, which became inevitable when coalition partner, the Dutch extremist Party for Freedom (PVV), refused to support Rutte's plans for more of the austerity that already has punished the Dutch economy, people, and culture, has led to a real estate and building crisis, and risks backfiring even more. Polls show that while the left is not yet ready to recapture the Dutch government, the Socialists could double their seats in Parliament while the PVV will lose more than 20 percent of theirs.

In Monday's economic news, the Spanish austerity that has led to falling industrial output and deepening debt, with record unemployment and a stunning rate of 50 percent youth unemployment, now has the country officially back in recession.

So with austerity again and again proving a failure, and governments responsible for austerity finally beginning to fall, how are the markets reacting? They collapsed. Because nothing could be worse for the markets than a change from the economic policies that have been destroying economies. In the United States, it's political orthodoxy that Republican policies of tax cuts and budget cuts are better for the markets, but history proves exactly the opposite. The markets do better under Democrats. They are doing better under President Obama. And yet you still see supposed experts claiming that the markets will suffer should the president be reelected. It's one of those great mysteries of modern political and economic messaging, and it was summarized by Paul Krugman:

If Sarkozy somehow pulls off an upset win, it will mean more of the same European economic orthodoxy ' the insistence that fiscal responsibility is the only virtue and austerity the universal answer. This orthodoxy somehow retains its grip despite overwhelming evidence that it's wrong and disastrous failures in practice.

An Hollande victory would shake things up, and offer at least the possibility of something better.

This orthodoxy retains its grip only because the investor class has lost its grip. The facts speak for themselves. Austerity is a disaster. It's time for something different, something that actually works. If the investor class had any sense at all, the markets on Monday would have soared. Because France soon may be leading the way out of the European economic disaster. And the White House, unlike the new Republican leader, already seems to understand that austerity isn't the way out of the U.S. economic disaster.