Nobel laureate Paul Krugman writes about austerity in his column today (Feb 9, 2015 ) in the New York Times. He thinks that at a time like this economic austerity is exactly the wrong approach. He points out, contrary to common knowledge, that an economy is NOT like a household. The difference is that a household can strive to balance it’s income and expenses. For instance, it can try to maintain income and reduce expenses. But in the economy as a whole everyone’s expense is somebody else’s income. If everyone tries to reduce their income at the same time then everyone’s income has to fall. And when everyone’s income has to fall there is not enough wealth to buy even what is available and so production falls. This is a spiral that is hard to overcome.
Krugman points to the instructive difference between American and Eurozone polices; - In America there was at least some stimulus - not enough but enough to be instructive because America’s economy is in far less trouble than Europe’s now. Notice the context of demands for austerity - the capitalist economies have been dramatically cutting waste out of government since the 1970’s.
Doesn’t that seem a bit odd to you? We've had austerity based cutbacks to government for 40 years with no visible impact on government while increasing the level of torment in the population. I remember what government was like in the 60’s - it didn’t seem bloated with lots of people sitting around doing nothing. Government workers enjoyed a certain measure of job security in return to fairly low wages compared to the private sector. But even those wages were enough that civil servants could buy houses and raise families like everyone else.
And I remember the tax revolt in California in the mid-70’s - that turned out to be a game changer - literally . What happened was that California became a huge low tax place - all of a sudden countries all over the world were in a race to the bottom as far as taxes were concerned. The old tax regime built our infrastructure and in lots of countries provided free medical care and education. It wasn’t that people couldn’t afford to pay the taxes that society depends on.
What had happened was that a bunch of prosperous WW2 pensioners decided they’d rather buy another TV than pay taxes. It transformed society from a place where prosperity and security were seen as the norm to one where everybody but a very small proportion of us is scrambling to survive. We had been moving towards a stable high wage economy that would have been good for everyone. But we got flipped over into a stable low wage economy where fear of absolute destitution is one of the main motivations our economy offers. So when it comes to austerity - It turns out to be a doctrine that causes exactly the problems we face. It’s an economic mechanism that has helped drive the huge disparity in incomes that is one of the biggest social problems we face. Austerity has had other pernicious influences. Once science and medicine were seen as social enterprises largely funded by society via universities and government research. That research automatically became public property. Decades of cuts to government funding means that now most scientific research is supported by private corporations - and they exact a high price. Not only do they restrict the sort of research that can be funded - they can even restrict publication of data that they don’t like.
Austerity involves the mistaken that money is the primary thing to think about when thinking about a national economy and how it works. The idea is that we have to get control of the money - make the accounts balance - but we lose sight of just why we have money and all those accounts. They aren’t values in themselves - they aren’t sacred - they are humanly evolved structures with a purpose - and that purpose isn’t piles of money in accounts. The purpose of an economy is to allow us to all live together in peace and harmony and prosperity. Whatever works works, and whatever doesn’t work doesn’t work. And austerity in an economy just doesn’t work - every time it’s tried it’s a disaster. Heard about what happened to Kansas this year when they bankrupted their government by slashing taxes - their economy tanked. Remember Voodoo Economics of the Reagan years? That damage was alleviated a bit in the Clinton years. Whenever austerians come to power they crash the economy - there are many examples and lots of theoretical reasons for that. And then they have the chutzpah to pose as our rescuers. This topic is in the news a lot lately because of the economic struggle happening in Greece. I’m pretty interested to see where that situation goes. It may be the start of a collapse of a whole house of cards. Not just Greece’s - the whole capitalist economy is under huge stress now. We live in interesting times :-)