Austerity Works!…In A World Where Leaders Want Stagnation

In General Interest by Jonathan Tasini1 Comment

    I often fear I am going to be injured–a victim of the adult "shaken head" syndrome. It’s the syndrome I think many of us are afflicted with–you wake up every day and read some stupid-ass comment or proposal by political leaders of both parties and…you shake your head. I’m telling you, it’s dangerous.

   What world do these people live in? Across the globe, political leaders, egged on by too many people in the business world, are choosing austerity over stimulus, cuts rather than jobs, punishment of the people who had nothing to do with the crisis but a stay-out-of-jail card for everyone of the people who caused the crisis.

   And, the end result, as the United Nations points out, will be decades of stagnation and misery.

   In one way, I feel sorry for the people at the United Nations Conference on Trade and Development who worked on a new report with the admittedly boring title "Post-crisis Policy Challenges in the World Economy": their hard work in pointing out some obvious economic FACTS will not be read by our president nor any of the dim bulbs who are jostling to succeed him. All of these folks are too obsessed with idiotic ideas like deficit reduction.    But, sometimes, boring titles are worth getting through to read some facts. Like:

Fiscal imbalances and higher public debt ratios are a consequence of the global financial and economic crisis, not the cause.[emphasis added]


Fiscal austerity seeking to cut fiscal deficits, curb public debt and thus "regain the confidence of the financial markets" is likely to be self defeating, as it affects GDP growth and reduces fiscal revenues.[emphasis added]


However, it is important to consider that the crisis was mainly generated by the irresponsible behaviour of private actors in the financial markets, and that it required costly public interventions. Therefore, it is surprising that a large segment of public opinion and policymakers are again putting their trust in the judgment of those same institutions, including rating agencies, about what constitutes correct macroeconomic management and sound public finances.[emphasis added]


The way in which the public sector spends and taxes matters; the following are among the most effective tools for stimulating the economy, leading to job creation and increased demand:

    Increases in spending on infrastructure

    Social transfers

    Targeted subsidies for private investors

If tax cuts are the preferred instrument, they should be applied to the lower-income groups. This will have a stronger impact on domestic spending than increasing disposable revenue of high-income groups.


So far, the process of re-regulation of the financial systems has been slow and inadequate to cover the shadow banking system and to cope with a highly concentrated financial sector that is dominated by a small number of gigantic institutions.

   I essentially boiled down the report to the most important nuggets because they are simple, economic FACTS and ideas that apparently escape the comprehension–or is morality?–of our elected leaders.

   What are those facts?

   Austerity will not work.

   The only way to prevent years and years of stagnation and psychological devastation to generations of people is to SPEND MORE NOW, not cut.

   Elected leaders are punishing the wrong people.

   Elected leaders are listening to the very people who created the crisis. This is a new sickness: battered-politician’s syndrome.

   Nothing has changed–and the "shadow banking system" is essentially in place and ready to create another financial crisis in the not-too distant future.

   And people are wasting their time arguing about whether the president is good or bad? Please.

   The entire political system has gone off the rails and is engaged in a conversation that is entirely economically stupid.