The Flawed Logic of Austerity

What is most impressive about the commitment of some ideologues in Congress to what might be called “fiscal austerity”—a euphemism that usually refers to some combination of massive reductions in spending on social services, including earned benefits programs, and a demand that government function on still narrower ground, with trillions of dollars given away to the already wealthy—is that it presumes we have no viable economic future. The very faction that says we need to “slash spending to spur growth” actually holds the view that our future will not produce the prosperity we need to fund our national democracy.

The vicious wrangling over what became known as “the fiscal cliff” illustrates the point. While building an entrenched national political machinery on the assertion that government spending “kills jobs”, obstructs investment and crushes the American dream, hardline tax fanatics played Chicken Little, raising the siren about the economic Apocalypse that would ensue if the sequestration of hundreds of billions of dollars in Defense appropriations and other government spending were allowed to go forward.

In an amazing, even historic, display of legislative chess, the hardline tax hawks were outwitted by circumstance and by the resolve of principled pragmatists. Suddenly, it became necessary, because of the deal they voted for, to make a choice: fiscal austerity or job-killing cuts to public spending. The near universal concern that the nation would in fact “go over the fiscal cliff” left hardline ideologues between a tock and a hard place: oppose action, validate and empower an already buoyant Obama and shoulder the blame for massive economic havoc, or act to prevent that havoc, reveal the flaws in their ideological narrative, and validate and empower an already buoyant Obama.

It now seems fair to say that the fiscal cliff situation was an overthrow of Rep. Paul Ryan’s guiding philosophy, with the vocabulary of the moment firmly rooted in his way of talking about the budget. Ryan and others will try to use the temporary nature of the solution to sequestration as an opportunity to argue for a rash of painful “deep cuts” to spending on social services; that much can be expected. But the whole charade underlying Ryan’s way of talking about the budget has now been exposed: austerity does not bring prosperity; it brings systematized collapse.

In Europe, we have seen this truth born out time and time again. Greece, Italy and Spain are experiencing massive public discontentment and even political unrest, because austerity measures have pushed youth unemployment above 50 percent. German leaders have adopted the flawed logic of austerity as their tool of choice for carving out rescue packages, but their actions have deepened the economic crisis in Greece, and now Spain’s antipopulist government, in an astonishing show of tone deafness, is deepening the crisis there by imposing austerity measures that are actively failing elsewhere.

The United Kingdom had the inauspicious experience of seeing its Conservative-led coalition government impose unprecedented austerity measures, driving the nation directly back into recession. The arithmetic os simple: in an absence of lending when capital and hiring are not expanding, the public sector, an economy’s single largest source of capital investment, keeps capital moving through an economy; drastic cuts impede the flow of new capital and hinder growth.

Austerity is not a plan for growth or generalized economic prosperity; it is a strategy for wealth transfer, from society at large to powerful, already wealthy interests looking to concentrate power in fewer and fewer hands. That is what fiscal austerity has always been; in fact, its proponents hardly pretend it is anything else. It has only been where a certain strain of self-conscious populism or the pretense to genuine efficacy in economic policy-making interfere with the central aims of austerity that regard for the notion that there is a middle class to protect even gets mentioned by proponents of austerity.

Instead, the prevailing idea seems to be just another rehashing of the so-called “supply-side” economic theory, also known as “trickle-down”, which holds that by giving money to rich people, everyone else will see their quality of life and personal liberty and opportunity improved. This is not an over-simplification of the austerity argument; it is the argument… “The government doesn’t know how to spend money; people who are accustomed to having money know how to spend it.”

An important, and very risky, part of the equation is the assumption that all people with money are automatically equipped to make good investment choices. The problem, beyond the variability of human character, regardless of class or status, is that this is beside the point: if we drain the consumer economy of the wealth public-sector spending generates, consumers will spend less and our 70% consumer-spending economy will suffer.

It’s math. The “fiscal cliff” may or may not equate to economic Armageddon, but it has afforded us a revelation of a kind: there is nothing conservative, libertarian or pro-business about austerity; it is just a short-cut to the transfer of wealth from the majority to an increasingly isolated and preecariouslly situated sliver of the population holding the bulk of the wealth.

What gets lost in the false comparisons between the federal budget and household finances is that a single household does not have major legally instituted spending priorities that orietnt toward the benefit of all of society; the federal govenment does. If the government pays less for basic needs, then each of us pays more. And without a vibrant, liberated and industrious middle class, backed up by robust capital investment from the public and private sectors, that sliver of the population will struggle to make use of its bulk of the wealth.

In an atmosphere in which too few people enjoy the “power of the purse”, in the most local sense, the wealth of those who do have it is actually less valuable, even where they have more. Viable, resilient, resonant wealth is bolstered by the dynamics that make a society viable, resilient and resonant in its prioorities and its activities. We are designing the future we will inherit, and austerity is a dangerous illusion, promising the impossible while working against the practical and the proven.