Teaching Comparative Government and Politics

Wednesday, August 12, 2015

Savings policy or austerity?

If you're not up to your eyeballs in austerity (a term that will almost certainly NOT appear on an exam in the next few years), there's a great article in Sunday's New York Times Magazine.

Even if the term doesn't appear again, the topic will and this is a timely segue into the complexities of economics.

The Tough Love of ‘Austerity’
‘‘Austerity’’ has become the catchall word for the cost-cutting a government enacts in order to balance its books: Cut pensions, cut the public payroll, cut social services — cut whatever and wherever. Shrink spending, shrink debt, shrink deficits. The idea is to inspire confidence and make the place more attractive to investors, who prefer a government that’s tough and lean to one that’s marbled and tender…

Austerity implies deprivation, undertaken under duress, to be suffered through or endured; a ‘‘savings policy,’’ by contrast, sounds practical and prudent, a solid foundation for a sensible way of life…

[T]he market was to be left alone — ‘‘laissez faire’’ — so that it was free to operate according to its natural laws. Recessions and downturns were the market’s way of correcting itself. When government intervenes, it invariably distorts…

Even those who are sympathetic to austerity may have a harder time with the word now. John Cochrane, an economist at the Hoover Institution at Stanford University, told me that it ‘‘started as bad marketing for some sensible policy’’ and has since become a ‘‘general-purpose insult.’’ He tries to avoid it: ‘‘I’m in favor of ‘growth-oriented policies’ — isn’t that a much prettier term?’’ Yes, though what it loses in insult, it perhaps makes up for in euphemism. ‘‘Growth-oriented’’ is as irresistible to an American sensibility as sparen, ‘‘to save,’’ is to a German one: It sounds like a no-brainer.

It also masks something that the word ‘‘austerity’’ does not. Austerity is often promoted as not only economically but morally necessary too — Greece, according to this argument, needs to be taught a very painful lesson, or else it’s going to continue to do silly things with other people’s money. Mark Blyth, a political economist at Brown University, told me that austerity policies, whatever we want to call them, turn an economic situation into ‘‘a morality tale of saints and sinners,’’ leading to punishment rather than problem-solving. Besides, he says, this morality tale gets it backward. Austerity programs have historically been enacted in reaction to a banking crisis: A government goes into debt in order to rescue the banks, and so private debt is transferred onto the public balance sheet. Public spending is slashed as a result.

Given that the poor benefit more from the kind of government spending that is cut, Blyth writes in his book, austerity ‘‘relies on the poor paying for the mistakes of the rich.’’ Greece’s people are becoming poorer: Last year, Unicef calculated that more than 40 percent of Greek children were living in poverty, a doubling from four years earlier. The conversations about Greece sound depressingly familiar, mimicking the ones we have here about the poor, the rich and who ‘‘deserves’’ what. The setting might change, but the moral stays the same: Those with less are expected to be the ones to do without.

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