Austerity

Austere: Stern and cold in appearance or manner (Merriam-Webster). Severe, uncompromising, strict, forbidding (dictionary.com).

   News item: The UK is heading for a triple-dip recession, its third in five years. (The Guardian).

   The numbers tell a story: During the fourth quarter of last year, the British economy faded by 0.3 percent. Germany, the same. France, minus 0.1 percent. Italy, down by 0.2 percent. Spain, off by 0.9 percent. Greece, minus 0.6 percent. The 17 countries that use the euro suffered an economic downturn of 0.4 percent. The U.S. economy was off by 0.1 percent.
   A bunch of anomalies? Not likely. We'll know for sure in about two weeks, when figures for the first three months of this year are released.
   Meanwhile, politicians trumpet the need for austerity, demanding fierce cutbacks in government spending programs to reduce debt and bring their nations out of an impending economic hole.
   Yet, history tells us that every time austerity measures have been tried in the past to heal economic woes, they have failed, and the patient only sickens. A few decades pass, the economy recovers, another downturn looms, politicians renew their call for austerity, and again it fails.
   You'd think by now they'd learn. Oh wait, we're talking about politicians, who are convinced of their own rightness, and they ignore all evidence to the contrary.

   Consider first just what GDP (Gross Domestic Product) is: It's the total value of all goods and services produced in a nation during a given period, usually calculated quarterly. The components of GDP are Consumption (what people buy), Government (what government spends), Investment (money spent on assets set aside for future production), and Net Exports (the value of stuff produced nationally and sold overseas).
   Consumption, the money the general public spends on stuff, accounts for some 80 percent of GDP. When people and firms reduce their consumption, the economy as a whole suffers. So one pay to take up the slack, so to speak, is for government to increase its spending, priming the economic pump to get things flowing again.
   If money is the lifeblood of an economy, we can think of government spending as a transfusion. But austerity is a direct contradiction of that policy. If both consumers and government cut back on spending, that only accelerates the downturn. Meanwhile, in a declining economy, firms have no incentive to invest in future production. And as production dips, so do exports, meaning fewer sales overseas and less income at home.
   Thus the cycle becomes vicious.
   How to break the cycle? Persuade people to increase spending. Good luck with that, when so many don't have jobs. Second, persuade firms to invest in more production capacity. Not gonna happen in the face of falling consumption. Third, increase exports to bring in more cash. Look at the above numbers -- the downturn is international; people can't buy stuff with money they don't have. That leaves government spending, usually on infrastructure projects such as roads, bridges, airports, museums, libraries, etc. which provide jobs for the unemployed, giving them money to spend on consumption.
   It has worked before. Yet the austerians call for more reductions, a policy which does not work.

   Deficit spending? Of course, at least short term. And there's the thing that rubs austerians the wrong way.
   What should happen is that when the economy recovers, government should resume attempts for a balanced budget, setting aside funds for a future rainy day. Will that make everyone happy? Probably not, since austerians are also arch-conservatives who want fewer taxes so they can keep as much money to themselves.

   By the way, what happened to the American budget surplus of a dozen years ago? It disappeared as conservatives cut taxes and increased government spending. Now they want to cut spending as well reduce taxes.

   How's that austerity thing workin' for ya?