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Friday, May 18, 2012

The austerity death cycle


The Eurozone experiment in austerity is failing, as many people predicted that it would. The conventional tried and tested approach at times of economic downturn has been for the state to invest in productive activities, stuff like large infrastructure projects, housebuilding and public education. This type of investment creates jobs and improves the long term economic prospects with more efficient infrastructure, better quality and more affordable housing and a more highly educated workforce. Another common component in successful economic recovery strategies has been to put more disposable income into people's pockets, by providing welfare payments (pensions, child benefits, unemployment benefits) and reducing the cost of services like public transport of health care. Creating employment and reducing the cost of living increases the amount of disposable income in the system, which in turn increases economic demand.

The neoliberal austerity experiment is to try the opposite, to dramatically reduce government expenditure on stuff like infrastructure, housebuilding and education and to slash welfare payments by undermining existing pension agreements, eliminating many benefits and making the others much more difficult to obtain. Adherence to hard line austerity measures have intensified the Greek economic meltdown, created a vast unemployment problem in Spain and driven the UK back into recession.

The problem with "austerity" is that it is exactly the same kind of discredited neoliberal dogma that created the global financial meltdown in the first place. When the establishment response to the financial sector meltdown was to prop up the debt riddled institutions with direct government funding and Central Bank ultra-low interest "giveaway" loans, it was clear that maintaining the status quo was going to be the priority. They just needed a change of narrative in order to explain away the crisis. Thus the Great Neoliberal Lie was born. Excessive state spending, not reckless financial sector gambling had caused the crisis and the "only solution" would have to be "austerity".

The reason austerity is not working is that the austerity policies are not even meant to be a solution to the crisis, they are simply a justification for the continuation of the "orthodox neoliberal" agenda. The political and financial establishment are simply continuing to do what they want to do; to lower taxes on themselves and their supporters, reduce regulations limiting themselves and their supporters, funnel ever increasing amounts of state expenditure to themselves and their supporters whilst cutting welfare entitlements and labour conditions to those who are not their supporters. Their real reason is selfishness, their actual policy is just self interest dressed up in pseudo-scientific terms in order to fool people into thinking that it is complicated, when it isn't.

Realisation that "austerity" is actually destabilising the economy and damaging the long term economic outlook wont change anything, because fixing the economy was never the actual reason for doing it in the first place. The only way that the excesses of the free-marketeers can be reduced, is when the people have had enough. It took the US nearly half a decade to begin rectifying the Wall Street Crash with the New Deal, it took the Second World War to shake Western Europe into developing the stable and highly productive social democratic mixed economy model and it took the Argentine people around four years to replace the "orthodox neoliberal" establishment with true patriots, people that put national prosperity ahead of adherence to the self-interested, self serving ideology of globalised neoliberalism.

It seems that after four years of punishing ideologically driven austerity the Greeks are on the verge of ousting the neoliberal austerity pushers. I wonder if the British people still have the backbone and solidarity to rid themselves of their sickeningly self serving, corruption riddled, austerity loving establishment?


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