Stupid Austerity Policies

Please read Paul Krugman’s article in today’s New York Times. He nails the anti-austerity argument. Which supports the point I made a few days ago.

The simple fact is that enforcing austerity measures at the moment will be counter-productive. It is absurd for anyone to argue that there is a sound economic reason for budget cuts or for the elimination of any recession fighting policies. As Krugman clearly states there are no signs that the world economy is ready for the post recession scaling back of the stimulative policies in effect in most large countries. On the contrary the evidence is that most recoveries are now slowing down from their early post recession pace and are in danger of slipping into a renewed recession.

I attacked the pseudo puritanical roots of the austerity supporters before. There appears to be no rationale for their position except that austerity is a sign of strength. Which merely begs the question: a sign to whom? Who is it that is so important and distressed about the budget gaps yawning wide across the world that needs to be appeased by austerity? No one.

What I think is going on is a perverse reaction by politicians worldwide to the fall of Greece. None of them want to go through the very public humiliation that the Greek leaders went through as they struggled to put together a bail out of their economy. So, rather than suffer that kind of embarrassment, they prefer to hammer their voters instead. Particularly the weakest of those voters.

And this is the most important point to bear in mind: any significant cuts in government spending will fall disproportionately upon the disadvantaged. Take as an example the ridiculous vote in the US Senate to stop the extension of long term unemployment benefits. Apparently the US cannot find the necessary $77 billion to keep those benefits alive, despite the existence of the worst level of long term unemployment since the Great Depression. The amount needed is a drop in the bucket with respect to the total budget. It is well known that unemployment benefits are an extremely efficient form of stimulus because the cash gets spent and not saved – unlike tax cuts which are equally well known as a very poor form of stimulus. In the context of many programs that the Senate has supported through the years, it is an extraordinarily cynical position to adopt that ‘we can’t afford it’. But we can afford two wars, a variety of tax cuts, a ‘defense’ budget larger than the entire defense budgets of the next ten large countries, and countless pet projects designed to curry favor with special interest groups across the country.

It is this asymmetrical nature of austerity that I find so objectionable – besides its economic stupidity. The search for cuts seems always to miss the wealthy and the military/industrial complex. The urgency in imposing efficiency in the labor markets, which is the nasty economic rationale for stopping unemployment benefits, is never associated with an equal urgency to impose efficiency on ‘defense’ spending. Pentagon waste is tolerated as infinitum. Long term unemployed workers are, apparently, far less important than extra planes to fight non-existent enemies.

Defense has its place. But it is worth remembering that we need something to defend. I suggest a vibrant economy where we all share in the ups and downs of the economic cycle rather than one where only a privileged few gain. An economy where hard work produces a living wage. An economy where opportunity is less a function of wealth and more a function of skill. An economy, in other words, such as the American economy used to be in the 1950’s.

Unfortunately we have moved a long way from that vibrancy. We have created an economy tilted towards finance and the privileged. And now we want to make that tilt even more pronounced in the name of austerity.

First up: austerity is not needed. Second: any austerity programs will hammer the poor.

What is this for?

Is this the US we want?