Does Austerity Actually Work?
Amidst the global economic crisis, many countries are turning to austerity. The notion that reducing government spending and social services while increasing taxes on the general population will cut the deficit is particularly popular in Europe. As the United States is poised to enact similar principles of austerity, it seems appropriate to ask the question: Does austerity actually work?
The answer appears to be a resounding NO. The United Kingdom strongly implemented austerity measures across the board in the hope of hitting certain benchmarks down the road, but the cutbacks have only heightened the effects of the recession. The Economist says that now half of the economists who called for austerity in the UK three years ago have changed their opinions.
The rest of Europe felt similar effects after experimenting with austerity. As Daily Kos reports, an International Monetary Fund study uncovered that “tax hikes and spending cuts… have been causing far more economic damage than experts had assumed.” The same budget cuts meant to conserve money ended up costing countries more than if it had been spent in a manner that could stimulate the economy.
Austerity’s failures are hardly new. Economist Ha-Joon Chang lists a number of times throughout history that governments have employed austerity in the face of recession only to exacerbate the situation. Given austerity’s track record, Chang cannot fathom why it is continually heralded as a solution. He likens the situation to the famous Einstein quotation that insanity is “doing the same thing over and over again and expecting different results.”
Perhaps a better question is not “does austerity work?” but “who does austerity work for?” For the answer to that, look no further than the people who are promoting austerity: Wall Street executives. ThinkProgress quotes JP Morgan Chase CEO Jamie Dimon calling for us to follow Europe’s lead:
What I’ll say about Europe is they have the will. Listen to their politicians. Their politicians say, “There is no Plan B. The Euro will not be dissolved.” The way is very complicated and will take many years. The United States is the opposite. We know exactly the way. It’s something called like a Simpson-Bowles, we’ve seen a lot of different plans come out. We don’t yet have the will. The United States is a far simpler problem.
Ultimately, austerity is a way of reestablishing the preexisting economic norms by consolidating wealth at the top and offering bailouts to the corporations rather than the people who need it more desperately. “By pushing these policies against all evidence, our leaders are really telling us that they want to preserve – or even intensify, in areas like welfare policy – the economic system that has served them so well in the past three decades,” said Chang.
Jared Bernstein, a senior fellow at the Center on Budget and Policy Priorities, also notes that “austerity” is just another way for Republicans to capitalize on an already vulnerable populace. Cutting social programs has been on the GOP’s agenda for a long time; the recession is finally a plausible (though highly flawed) excuse to finally enact these detrimental reforms.
“The time for austerity is when the economy is strong and growing,” said Bernstein. “When it’s stuck in the mud, austerity just digs it deeper.” That lesson is one Wall Street and politicians should have learned before their decidedly non-conservative fiscal practices led to the recession. How can we not be wary of calls for financial sacrifices from people who have no intention of making these sacrifices themselves?
Photo Credit: William Murphy