Friday, August 31, 2018

Yanis Varoufakis - The Three Tribes of Austerity

Austerity prevails in the West because three powerful political tribes champion it. Enemies of big government have coalesced with European social democrats and tax-cutting US Republicans, to create a cartel-based, hierarchical, financialized global economic system.

ATHENS – No policy is as self-defeating during recessionary times as the pursuit of a budget surplus for the purpose of containing public debt – austerity, for short. So, as the world approaches the tenth anniversary of the collapse of Lehman Brothers, it is appropriate to ask why austerity proved so popular with Western political elites following the financial sector’s implosion in 2008.

The economic case against austerity is cut and dried: An economic downturn, by definition, implies shrinking private-sector expenditure. A government that cuts public spending in response to falling tax revenues inadvertently depresses national income (which is the sum of private and public spending) and, inevitably, its own revenues. It thus defeats the original purpose of cutting the deficit.
Clearly, there must be another, non-economic, rationale for supporting austerity. In fact, those favoring austerity are divided among three rather different tribes, each promoting it for its own reasons.
Project Syndicate 

1 comment:

Andrew Anderson said...

Enemies of big government ...

An anti-austerity program does not necessarily require bigger government - it just requires more funding - especially in the case of direct payments of cash to citizens such as Social Security.

I don't recall G.W. Bush's "stimulus checks" accused of making government bigger, does anyone else?

So what's more important? Ending austerity or insisting that increasing the size of government is the only way to do so?