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The Case Against Austerity

I don’t know why we fall for really stupid economic theories, but it may have something to do with the huge amount of money being spent to convince 99% of Americans that it will be good for us to give all our money to the 1%. First it was “trickle down economics” until that was soundly discredited. But rather than give up on it, they just came up with another name, “austerity”. Austerity is nothing like trickle down economics. In austerity, we have to reduce spending severely in order to cut taxes (which mainly benefits the very rich).

See the difference? Well, neither do I.

But we keep hearing about austerity. Greece has to cut spending even more than they already have. Retired people have to give up a big part of their pensions, and there will be big cuts to education. Why? So Greece can pay money back to their rich creditors who stupidly invested in Greece when they knew it was becoming insolvent. Sound familiar?

Which is why it is a good thing that the LA Times has published an article about what should be obvious to everyone: “The evidence piles up: Austerity poisons economic growth“:

Why has the post-recession recovery been so slothful, both here in the U.S. and abroad?

The answer has been plain for years: Government leaders pursued policies of austerity, cutting public spending with the fanaticism of moral crusaders. The almost universal result was a stifling of economic growth.

Resistance to public spending hobbled the U.S. recovery and has had even worse effects in Europe, which embraced austerity more.

We made the same mistake after the Great Depression, and only fully climbed out of that when WWII forced us to seriously increase spending. Yes, that drove the federal deficit up for a few years until growth picked up dramatically and the resulting economic boom cut the national debt to a quarter of what it was at its peak.

If that weren’t enough evidence, today we have states like Kansas, Wisconsin, and Louisiana, which fully embraced austerity and tax cuts (promising the resulting economic growth would make everything better), only to see their economies get worse instead of better:

Things have gotten so bad in Louisiana, where budget cuts have Louisiana State University contemplating the equivalent of bankruptcy, that Republican legislators are pleading to be relieved of their earlier no-tax pledges.

Now here’s the ironic part. Even though the wealthy stand to gain the most from austerity, in reality they lose too.

Crumbling roads and bridges cost business owners dearly in transport costs; underfunded educational systems raise their cost of finding or training qualified workers; poverty and unemployment cause social unrest, which leads to attacks on their property.

In Kansas, Wisconsin, Louisiana and other fanatical tax-cutting and government-shrinking states, the signs are emerging that austerity isn’t even its own reward. High-income taxpayers may feel flush for a while when their rates are being slashed, but when the consequence is shuttered universities, understaffed schools, and unemployment spreading among what should be their customer base, everyone is impoverished.



  1. Yudith wrote:

    In Canada, the reasoning is more insidious; the idea is that we need to reduce spending severely in order to pay the public debt. You would think that the money that is not put in trivial things like our crumbling bridges is put in paying the debt. Then you hear the Conservatives announce tax cuts aplenty and easier environmental laws for the job creators. It would make you spit the water you are not drinking because there is oil in it.

    Thursday, July 9, 2015 at 4:39 am | Permalink
  2. ebdoug wrote:

    I pay higher taxes to New York than I do to the Federal Government. As I tell everyone who complains “We get what we pay for.” I’d have to be unconscious to move out of New York State.

    Thursday, July 9, 2015 at 5:55 am | Permalink
  3. il-08 wrote:

    How did Europe get bought into this mess? Europe has a history of embracing social leaning governments for years and now it seems in the hands of the worst of the austerity proponents. How did this happen? Is there a European version of the Koch brothers that we are not told about, or is there another factor at work that is unseen? Probably not the right direction for this site, but I would love to hear if anyone has any ideas.

    Thursday, July 9, 2015 at 6:59 am | Permalink
  4. ralph wrote:

    To paraphrase Ben Franklin, “Everyone is born ignorant, but it takes years of hard work to become stupid.”

    Thursday, July 9, 2015 at 8:05 am | Permalink
  5. JohnL wrote:

    RE: the philosophy that the “wealthy” will experience decline in business because of austerity… Wasn’t it the economist Thomas Piketty that raised the concern about inherited wealth making the 1% immune from business downturns? In other words the really wealthy are either not running a business, or really not concerned that the business is taking a hit… their still doing fine. So much inherited wealth, they cannot spend it (although they try) in their or their childrens lifetime.

    Thursday, July 9, 2015 at 8:27 am | Permalink
  6. Scott Segraves wrote:

    LMAO at EBDoug’s comment about having to be unconscious to move out of NY because of what their higher-tax situation provides its citizens. In 2009 Rush Limbaugh made a big to-do about how the Empire State’s onerous tax burden was making him pull up stakes and head for a no-tax state.

    And that, Dittoheads, is your perfect example of “unconscious.”

    I’d ask why he hasn’t made good on his other promise — to move to Costa Rica if Obamacare were enacted — except that I have a couple of dear friends who are about to retire to C-R, and I’d hate for them to have his toxicity in their neighborhood.

    Thursday, July 9, 2015 at 8:30 am | Permalink
  7. Iron Knee wrote:

    Johnl, that is a good point, but I wasn’t talking about just money. It doesn’t matter if you are filthy rich if your city and country are crumbling around you. Studies (including one done by my sister) have shown that as income inequality goes up, the health, happiness, and life expectancy of even the very rich goes down.

    Thursday, July 9, 2015 at 9:39 am | Permalink
  8. ralph wrote:

    IK, think you lost me somewhere. You’re counting on the better angels on the shoulders of the 0.1% to appeal to their social empathy? Ever hear about the Cayman Islands? The Riviera? There’s practically no end to their island or paradise retreat options. Practically half of India is in abject poverty, yet there’s never a shortage of gated communities there (or here) to insulate the privileged from the lower castes. Out of sight, out of mind.

    It has generally taken grassroots activist movements, short of pitchforks, to change the status quo throughout history.

    Thursday, July 9, 2015 at 11:37 am | Permalink
  9. Iron Knee wrote:

    Ralph, I said it was ironic. I didn’t say that would cause the problem to be solved. People do stupid things.

    Thursday, July 9, 2015 at 4:50 pm | Permalink
  10. ralph wrote:

    Sure, sorry, didn’t link your last comment back to the source, or the website name đŸ˜‰

    Thursday, July 9, 2015 at 6:08 pm | Permalink
  11. Daniel wrote:

    I guess I’m a bit late to the conversation but here’s my 2 cents: I agree that trying to fix the economy should not be something done at the cost of those members of society most vulnerable to economic problems in the first place.

    However, comparing austerity to trickle down economics is a bit like apples vs oranges. In fact, “austerity measures” often include tax increases. There is also good evidence that austerity works (at least to a degree): Spain is now the fastest growing economy in Europe and Ireland and Portugal have both regained normal market access. If you google “greek economy returning to growth” you will find that it was starting to work in Greece as well until Syriza came into power and made a pigs ear of the negotiations.

    Whether austerity measures are suitable in the Greek crisis is a different question entirely, since the Greek debt-to-GDP ratio is far worse than in any of the aforementioned cases and, without debt relief at some point, probably unmanageable.

    Monday, July 13, 2015 at 3:53 am | Permalink

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