By Ubaldo Daverro, Columnist

As countries continue to rack-up deficits dealing with pandemic recovery, the evil specter of ‘austerity’ has slowly, but surely, found its way into the news. What is ‘austerity,’ and despite overwhelming evidence that it doesn’t work, why is it the elite’s preferred method of dealing with government deficits and promoting overall economic recovery? 

Austerity is an element of neoliberal economic policy that is endorsed by political and economic elites and refers to cuts in government spending, the privatization of public enterprises and the implementation of massive tax cuts benefiting the wealthy, corporations and investors.


The advocates of austerity make the case that savings are then plowed into reducing deficits thus restoring business and consumer confidence, culminating in economic recovery. The reality, however, is the exact opposite. Austerity policies result in the transfer of enormous wealth upwards, increasing deficits while impoverishing the overwhelming majority of citizens.


Government austerity policies cut and privatize programs and services most frequently used by the general public: public education and healthcare, social services (welfare, parks, recreation, sanitation), public housing, student loans and environmental protection. At the same time government tax cuts overwhelmingly privilege the wealthy. The last American tax cut enacted by Donald Trump was the single largest in history worth 1.5 trillion dollars. Governments now collect fewer tax revenues which fuel even more spending cuts (since governments have less money to spend) while telling the public they have ‘no choice’ but to drastically reduce government spending (while exempting military budgets from any cuts at all). Well, governments do have a choice. In fact, they have many choices.


According to Mark Blyth, Professor of International Political Economy at Brown University, austerity is a ‘dangerous’ idea. In his epic 2013 book, Austerity: The History of a Dangerous Idea, Blyth details the overall failure of austerity programs and the damage done to economies and therefore, the quality of life of the majority of citizens. Instead of rejuvenating economies and raising living standards, austerity transfers hundreds of billions of dollars upward to the wealthiest 10 percent of citizens (the 1 percent benefit the most) permanently impairing economic growth while destroying the quality of life of citizens who disproportionately rely on government services and programs. 

Countries who accept austerity measures generally remain mired in economic misery. This is especially the case in the developing world where austerity measures go by the name of ‘The Washington Consensus’. Developed in 1989, some of the 10 measures of the consensus include massive reductions in government spending, privatization of government services, massive tax cuts and unfettered acceptance of foreign investment. These measures are the basis of Structural Adjustment Programs (SAPs) or loans offered to the developing world by the American dominated International Monetary Fund (IMF) and World Bank. Not a single developing country in the world has overcome its ‘developing’ status by implementing austerity filled SAPs. If developing countries have raised living standards and stimulated economic growth it is because they rejected The Washington Consensus by actively involving central governments in economic planning. This has certainly been the case for Bolivia, China, Cuba, Nicaragua, Venezuela and Vietnam.


The cases of Cuba and Venezuela are especially important since they have been subject to long standing vicious and illegal American economic sanctions. Yet, their economic difficulties resulting from the sanctions are blamed on their rejection of The Washington Consensus!


The experiences of the developed world are similar. Austerity measures were applied across the board to the countries of Eastern Europe and the former Soviet Union after its demise in 1989. The Chicago School of neoliberal ideas were immediately applied to Russia where it quickly devastated the economy and living standards. The 1990s are now referred to in Russia as the ‘dark years.’ This is epitomized in the free fall of life expectancy from 1990 to 1994 where life expectancy for Russian men and women declined dramatically from 63.8 and 74.4 years to 57.7 and 71.2 years, respectively. 


Defenders of austerity point to the successes of Bulgaria, Estonia, Latvia, Lithuania and Romania. Yet, because of their unique economic and political situations Blyth cautions against understanding such experiences as transferable to other countries.1 According to Blythe, these five countries chose to suffer through “… massive deflation, migration and unemployment” 2 and concludes the pain does not justify the results. Why would any population in the developed world want their government to subject them to such economic and social trauma?


Blyth frequently points out the cautionary realities of Ireland, Greece, Portugal and Spain. All are under pressure from the European Commission (EC), the European Central Bank (ECB) and IMF (collectively known as the Troika) to consistently implement austerity measures even though economic recovery is nowhere in site. The case of Greece is particularly troubling. The vicious austerity measures forced on the Greeks by the Troika to deal with the 2008 financial crisis and enthusiastically supported by the political and economic might of Germany, simply destroyed the Greek economy. Greek Gross Domestic Product (GDP) declined by almost 30 percent sending unemployment skyrocketing and living standards plummeting.


What happens when populations take to the streets to fight the unfair implementation of austerity measures? The Greeks elected the left-wing party Syriza in 2015 to do exactly this. The Greeks were quickly brought into line. Yannis Varoufakis, the Greek finance minister from January to June 2015, was informed by German finance minster, Wolfgang Shauble that “Elections should not be allowed to change economic policy.” If elections cannot change government policies especially economic ones, then what is the function of democracy? Austerity is a dangerous idea and must be resisted everywhere.


Beware of politicians and economists bearing the gifts of austerity. Be very aware!


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