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Austerity – the policy of cutting government social spending in order to appease fiscal hawks (and investors and creditors) – is arguably the most harmful economic policy in the world. The economist Paul Krugman describes what was going on in 2010:
…elites all across the western world were gripped by austerity fever, a strange malady that combined extravagant fear with blithe optimism. Every country running significant budget deficits – as nearly all were in the aftermath of the financial crisis – was deemed at imminent risk of becoming another Greece unless it immediately began cutting spending and raising taxes. Concerns that imposing such austerity in already depressed economies would deepen their depression and delay recovery were airily dismissed; fiscal probity, we were assured, would inspire business-boosting confidence, and all would be well. …
Since the global turn to austerity in 2010, every country that introduced significant austerity has seen its economy suffer, with the depth of the suffering closely related to the harshness of the austerity.
And it’s important to understand that even countries that wouldn’t choose austerity policies for themselves, can have those policies forced on them. (This thought is what inspired my cartoon). Creditors from larger, more powerful economies can insist on austerity policies. Nobel-prize winning economist Joseph Stiglitz, regarding the economic disaster in Greece, wrote:
Of course, the economics behind the program that the “troika” (the European Commission, the European Central Bank and the International Monetary Fund) foisted on Greece five years ago has been abysmal, resulting in a 25 percent decline in the country’s GDP. I can think of no depression, ever, that has been so deliberate and had such catastrophic consequences: Greece’s rate of youth unemployment, for example, now exceeds 60 percent.
It is startling that the troika has refused to accept responsibility for any of this or admit how bad its forecasts and models have been. But what is even more surprising is that Europe’s leaders have not even learned. The troika is still demanding that Greece achieve a primary budget surplus (excluding interest payments) of 3.5 percent of GDP by 2018.
I think the reason austerity policies have such a hold on certain economic elites (turns and glares at Germany), as well as on many ordinary citizens, is that it tells a story which makes intuitive sense to us. Austerity is a morality play: If a country’s economy is bad, it’s because that country has been spending too much. So the solution is to starve for a while. Tighten your belt, Greece!
But at a country level, belt-tightening is the very worst thing a country can do in a recession. When governments slash spending, that means less people have work; when less people have work, they spend less, and recessions become worse. And if the recession getting worse leads to creditors demanding further cuts, a country can get caught in a vicious cycle.
In the Krugman article I linked to, written in 2015, Krugman wrote that no one believes in austerity anymore. But the idea – or, rather, the ideology – hasn’t gone away, and is currently causing great suffering in the UK.
In the U.S., any time the economy takes a downturn, the austerity ideologues emerge and call for cuts, cuts and more cuts. The more influence they have the next time we’re in a recession, the longer it’ll take us to recover.
In his article “How Austerity Ripped The World Apart,” Umair Haque takes a big-picture view, arguing that austerity is ultimately derived from economic thinking developed in slave-owning America. I don’t agree with everything Haque says, but his definition of austerity really struck me.
Austerity simply means a lack of investment by societies in themselves, in people, in public goods. Things like healthcare, education, transport, energy, retirement, decent jobs, incomes, savings. The problem is that all those things are what underpin the stability of societies, by ensuring that prosperity is something that is realized by all — not just something greedily seized by a tiny few.
TRANSCRIPT OF CARTOON
This cartoon has four panels. All four panels are set in a doctor’s office. There are three people in each panel. The first is an extremely wealthy looking man – he looks like a stereotypical banker – in a three-piece suit, smoking a pipe. The second man is the patient, a disheveled and emaciated man in boxer shorts and a sleeveless shirt. The third man is Doctor Austerity. Doctor Austerity wears a white doctor’s coat, a stethoscope, and a head mirror. (That’s what they’re called, honest!). Doctor Austerity is a huge, hulking, powerful looking man, with large hands and deep-set eyes.
A caption at the bottom of the cartoon says “DOCTOR AUSTERITY.”
The Banker and Doctor Austerity talk. Both are patting the Patient on the shoulder. The Patient is sitting on the examination table.
BANKER: Doctor Austerity, my friend’s economy is weak. Could you give him your treatment?
DOCTOR AUSTERITY: Of course! My treatment never fails!
Doctor Austerity has his hands around the patients neck, squeezing hard, and has lifted the patient right off the examination table. The patient has wide eyes and his tongue is sticking out of his mouth.
PATIENT: Choke! Ack!
DOCTOR AUSTERITY: Soon he’ll be completely better!
Doctor Austerity has let go of the patient; the patient is bent over, panting and gasping for air. The Banker peers at the patient; Doctor Austerity thinks hard, with one hand on his chin.
BANKER: That’s odd… He’s getting worse.
DOCTOR AUSTERITY: Hmnn!
Doctor Austerity and the Banker smile at each other, chatting, while the doctor resumes choking the patient to death.
BANKER: Better apply more treatment.
DOCTOR AUSTERITY: Good plan!