The Cause for Austerity: A Political Choice?
- Emma Walkley
- Mar 30, 2022
- 5 min read
After being subjected to a decade of austerity, an increasing number of economists have discredited the research that supported the austerity push advocated by western politicians. Elites across the western world believed in implementing a programme of austerity; a programme in which one of the world’s most influential economists, Paul Krugman, depicts as a “strange malady that combined extravagant fear with blithe optimism”. Every country that is running a significant budget deficit – as the majority were in the aftermath of the financial crisis – was deemed at imminent risk of facing a Greek style crisis unless austerity measures were implemented.
The politics of frugality has now been tried and tested in the western world. The notion is now becoming increasingly clear that the fallacy at the heart of austerity is a burden that has fallen mainly on those earning low and average incomes. No tendency to greater social justice is emerging from the practice of austerity, this is not a provisional phenomenon. Recent evidence instead takes the acquisition that austerity has damaged economic performance and broadened inequality while doing so. This article will delve into austeritarianism in Britain and the resistance against it constructed upon recent findings against the cause for austerity.
What is austerity?
Austerity can be defined as a set of austere political-economic policies that aim to reduce government spending or increase taxes in order to reduce a budget deficit during a period of weak economic growth. The term implies that spending cuts and tax increases are likely to have an adverse impact on aggregate demand and economic growth. It generally refers to fiscal policy, although tight monetary policy can also be seen as part of an austerical approach to the economy.
This was the policy in which the Conservative government in 2010 campaigned upon in the aftermath of the most crippling downturn since the Great Depression. The NHS and education were ostensibly protected, but government spending was slashed across the rest of expenditure: spending was cut for police, courts, prisons, and housing assistance. Inevitably, local governments suffered a plunge in revenue.
Source: The Guardian
The basis for austerity
David Cameron called for austerity to become a way of life rather than a prolonged policy – “we need to do more with less. Not just now, but permanently.” The objectives Cameron outlined are part of a long-term evolutionary outlook: global competition between nations makes it necessary for Britain to react flexibly and adapt to challenges quicker and more successfully than other nations. The most effective way to make sure that the full creative potential of society is unleashed is to have as small a state as possible. Only then can individual initiative and creativity thrive in the way necessary to get ahead of the international competition. In regard to this, the objective is not to maximise growth over the next couple of quarters or years. Rather, it is to put society on a superior evolutionary pathway that will lead to prosperity in the far future.
This can be summarised by the then Chancellor of the Exchequer, George Osborne “The truth is that the country was living beyond its means. Today, we have paid the debts of a failed past, and laid the foundations for a more prosperous future.”
Conservative Party leaders also sold budget cuts as a virtue, under their concept of something named Big Society. In order to diminish the role of a bloated government bureaucracy, they contended that grass-roots organizations, charities, and private companies would step to the forefront to revive communities and deliver public services more efficiently. In this sense, both Cameron and Friedrich von Hayek share similar concern: individuals and societies can only fully develop their potentials if liberty is the primary political principle. Thus, the campaign was run on the idea that fiscal probity would inspire business confidence. Economist Rob Parenteau coined people holding these beliefs in economic circles as austerians.
Increasing inequality as a direct result of austerity
When speaking upon the implementation of austerity in the UK, a United Nations expert said that efforts by the Conservative government to cut state spending were “entrenching high levels of poverty and inflicting unnecessary misery in one of the richest countries in the world.” Similarly, Peter Goodman wrote that austerity has made British society “less like the rest of Western Europe, with its generous social safety nets and egalitarian ethos, and more like the United States, where millions lack health care and job loss can set off a precipitous plunge in fortunes.”
Since 2010, the Conservative government has announced more than £30 billion ($40 billion), in cuts to welfare payments, housing subsidies and social services. The United Nations have interjected, stating that British leadership is in “a state of denial” about the devastation its policies have brought. Although the British government has disputed such claims, there are ample signs that social well-being declined under austerity whilst inequality exasperated. The use of food banks almost doubled between 2013 and 2017. Families that were in receipt of benefits are thousands of pounds worse off consecutively on an annual basis. On average, pay growth halved across OECD countries in the nine post-crisis years compared to the nine pre-crisis years. The austerity decade coincided with an explosion in the growth in insecure and bad quality work across the OECD. Renewed calls by business for greater ‘flexibility’ have led to increased attacks on trade unions. In turn, the result is rising in-work poverty.
From the beginning, there were many people who rejected fiscal stimulus and the demand for austerity pushed by the establishment. For instance, Alan Greenspan, the former chairman of the Federal Reserve, in 2010: “Inflation and long-term interest rates, the typical symptoms of fiscal excess, have remained remarkably subdued. This is regrettable because it is fostering a sense of complacency that can have dire consequences.” Later going on to say that “Growing analogies to Greece set the stage for serious response.” Greece was the disaster that austerians were looking for. In September 2009 Greece’s long-term borrowing costs were only 1.3 percentage points higher than Germany’s; by September 2010 that gap had increased sevenfold. It is with this that austerians had a substantial model of the dangers that they had been warning about. However, Greece is now seen as it should have been seen from the beginning – as a unique case, with few lessons for the domestic economies of many. It is impossible for countries such as the US and the UK, which borrow in their own currencies, to experience Greek-style crises, because they cannot ‘run out’ of money. Within the eurozone, borrowing costs plunged once the European Central Bank began to do its job and protect its clients against self-fulfilling panics by standing ready to buy government bonds if necessary.
How to help
Push your local MP to address the rising inequality that the country has seen and to advocate for economic policies that seek to reduce poverty and implement active regional policy to bring prosperity to the most poverty-stricken areas.
Research further into how austerity has impacted your country or other countries who undertook a similar course of action following the financial crisis.
Strive for a more equitable economic and political standpoint – VOTE.
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