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The Siren Call of Austerity
The World Economic Forum opened in Davos amid choruses of central bankers and economists calling for governments to cut spending.
This message of austerity is like the call of the ancient Sirens, whose music lured sailors to shipwreck.
This message of austerity is like the call of the ancient Sirens, whose music lured sailors to shipwreck.We should take a lesson from Odysseus, who poured wax into the ears of his crew and had himself lashed to the mast of his ship to resist the Siren call.
Austerity supporters are selling the idea that governments, like families, must cut back when income shrinks. But economically, governments are not like families.
Firing teachers, cops and government clerks will, for sure, reduce public spending. But budgets, like the song of the Sirens, are only part of the story. Listen only to the alluring lyrics and, like the many voyagers before Odysseus, we will suffer disastrous consequences - in our case falling incomes and worsening economies.
The full economic story begins with this principle taught to every economics student: spending equals income and income equals spending. Cut spending and incomes must fall; cut incomes and spending must fall.
Those who disagree with this say that only private spending can create wealth and that government spending is inefficient. I think the first argument is wrong, but the second is often true, which is why citizens need to pay close attention to their government.
When private spending shrinks, then either government spending must grow to make up for it or the other side of the equation, income, must shrink.
If we increase spending today by borrowing, we create a claim on future income. Families with debt must divert part of their future income to interest and principal to service that debt or go bankrupt. Governments are different, provided they have monopoly control of their currency. By definition, no sovereign government can ever go broke in its own currency.
NO TO AUSTERITY
The United States government, which has a monopoly on its currency, is $15.2 trillion in debt, roughly the same as the entire output of the economy for a year.
That figure has been sung in a refrain about massive debt threatening to bring down the economy and cause inflation. Facts, however, show otherwise.
Austerity budgets, by reducing government spending, will only make incomes fall more. The only way to make incomes rise is to make spending rise, which in the short run means more borrowing by governments to enable more public sector spending.The country was much deeper in debt, relative to the size of the economy, in 1946 than it is today and yet what followed was decades of prosperity. The 1946 debt remains and, after six decades of growth, it is inconsequential.
In Japan, government debt is roughly twice annual economic output and yet the country continues to function because real interest rates are at or below zero.
To be sure, conditions can change and interest rates can rise sharply, though central banks have ways to limit that. But that is not the problem today. The problem today is shrinking incomes due to shrinking spending.
Austerity budgets, by reducing government spending, will only make incomes fall more. The only way to make incomes rise is to make spending rise, which in the short run means more borrowing by governments to enable more public sector spending.
After reading the news from Davos, ask yourself why we should listen to the Siren song of the financial elite. After all, the people who steered our financial ship into dangerous waters in the first place were at the very top of this group. We should listen more to those will suffer from austerity budgets: children who only get one chance at an education, the sick and disabled unable to support themselves and seniors too old to work.
If, like Odysseus, we wish to row past our current economic straits into a new sea of prosperity, the one thing we must not do is be driven to economic madness by the Siren call of austerity budgets.
38 Comments so far
Show All"The only way to make incomes rise is to make spending rise, which in the short run means more borrowing by governments to enable more public sector spending."
The only way to get rich is to make other people poor.
That's the very thing they don't want people to think about. The whole economic notion of "growing" the economy means that money will supposedly somehow transmute itself into more money, metastasize like cancer cells.
They say "the rising tide lifts all boats" but that can only happen if new tidewaters show up from someplace. They talk about "wealth creation" but how is that supposed to happen?
They say it's not a "zero sum game" where one someone's gain is another's loss, but it seems to me as if it is, and those who own good seats at the gaming table are connected enough to stack the decks in their favor.
"They say "the rising tide lifts all boats" but that can only happen if new tidewaters show up from someplace"
Well the new tidewaters can easily come from the melting glaciers of Greenland, the Himilayan Mountain Range, and Antarctica. Any other questions?
.... as a musician (& a devil's advocate!...), let me ask you: (4 example) Did the Beatles make some people poor?.... They certainly became fairly rich... though not like investment bankers & their ilk... perhaps that's who you're referring to....
So very true, ezeflyer. We need a moratorium on greedy people. The human race has figured out a way to stop people from being greedy: a socialist government which is dedicated to equity. This form of government was practiced by the first followers of Yeshua (Jesus Christ) and should have grown with 'Christianity' instead of power politics and religious intolerance. If it is not possible for humanity to adopt such forms of government, thin we are a failed species and the sooner we disappear the better.
Those who led us into this disaster are the equivalent of dead-beat Dads. Talking to them about harming children that are not their children falls on deaf ears. They might notice when all around them is chaos, distrust or maybe even revolution. The people need to notice when they get $100 and the other guy gets $1 million at the same time and the other guy did not work for his money as with Mittens.
Austerity for the middle, working, and poor classes but prosperity for the rich? When asked why our congresswoman does not want the rich to pay their fair taxes she responded with a question :"Why do you want to punish the rich"? Republicans have been waging a class war against the poor since the 1980's at least. They never see the speck in their own eye. Mitt tells us that corporations are people too and the Banks are suffering just like us. How can any, awake, American, vote for these clowns?
Your congresswoman has a point: to the greedy, fair taxation is punishment. Anything that minimizes 'profit' is a punishment and a crime. It's time we stopped caring about this small class of people and the the system they have created for themselves. It's time we got rid of them. If we can't vote them (or their paid lackeys) out of office or do not have anyone to replace them with, it's time for a new system.
I will be accused of being bloody minded if I suggest that we bring back the guillotine, but it might be the only way. I personally do not want to share the planet with anyone owning a personal jet, or more than one house, etc.
This entire article is based upon conjecture.
The first conjecture is that 'currency' is somehow a natural element behaving according to natural laws, "increased spending = increased income", within a natural state, 'the economy'.
Currency itself is an invention of empire, a ticket so to speak that allows one to access plundered goods... the spoils of empire. How much money one has tells us how much privilege the empire has awarded that person to access its spoils. But, though one is given access to a certain amount of treasure, that privilege does not come attached with a full disclosure regarding how those treasures were obtained. Present currencies obscure labor issues, environmental depletion issues, etc. Therefore, building a robust and sustainable economy must begin with a redefinition of currency. Here's a start on that topic: http://allinharmony.org/from_empire_to_ecology/smart_money
Furthermore, our problems have to do with a culture of control that basically exists in contradiction to the natural laws that govern this biosphere and its requirements for sustainability (or prosperity if you like).
If you want to fix 'the economy' maybe understanding how we got 'economy' would be a good start: http://allinharmony.org/from_empire_to_ecology/making_sense_out_of_nonsense Exclusivity is an inherent 'feature'. Poverty is not a failing of this 'economy'. It is a planned and desired outcome!
Finally, until prosperity is based upon local talent, production, etc... we will not get close to understanding the way home... where abundance is natural.
If anyone needs to unplug from the sirens... it's the bozo who wrote this article!
Yes. Thanks.
Good point. The author is parroting the meme that the so called "liberal" economists keep repeating. He's another siren. Borrowing and spending money to "grow" the economy only hurts the very people it's supposed to help. It's better to cut spending in defense, farm subsidies and other corporate handouts to reduce spending. The multiplier effect of borrowed spending is a bunch of hogwash that has never been shown to work.
Well, it is a siren call because the average citizen is not economically astute but he does think that the big bad government is not prudent or capable and should not be trusted in fact cannot be trusted.--and Democrat or Republican the politicians who are supposed to represent that government and make it accountable have sung the same song. The average citizen, feeling the full rage of knowing that government has not done anything for him feels that the proper expression of his resentment is to punish that government--with austerity.
And because the average citizen is so sadly lacking in understanding of economics, it is up to candidates and public officials and media to present facts and clear jugments, not slogans and sound bites that feed on and promote ignorance, fear, and prejudice.
Banks don't create money by loaning it into existence out of thin air (the U.S. perspective in 1946 was one of infinite resources, especially CHEAP oil). They get people to promise to burn up FUTURE resources to repay the loans. In other words, a loan is slavery and theft at the same time (stealing from your future self, who hasn't made any promises). Government loans are slavery with a gun to your grandchildren's heads. There is no possible scenario that we can implement to reduce regulations OR use government spending to 'fix' an economic model based on people driving to the mall to buy more clothes to drive to the mall (or to the drug store to get drugs to forget what they needed drugs for). There is no leadership which can return the growth economic model of the 50's to America because that model was based on a fantasy called "consumerism"; requiring unlimited cheap energy and raw materials (and infinite holes to dump the trash). Humans are not really "consumers." Robots are. Humans are an animal species, mostly guided by hormones and reflexes that have untold potential to both give and take. Survival depends on our generosity to our children's future, not on harvesting it for personal gratification.
Redistribution of wealth doesn't work without the wasteful accumulation of wealth. Consumerism will end with people living in cold, dark caves a lot faster than environmentalism would put them there. Contrary to the redneck bumper stickers, environmentalists won't "freeze to death in the dark" because they are quite comfortable with less.
So, what's left to do? Look around. What resources need improving locally? How are we going to deal with the coming transitions away from growth-based economics? Will we create a local currency or barter system? What happens when the government admits that it can't pay its debts? What can we do right here to put people to work making the things we currently buy from China and Wal-mart? Who needs help in our communities? What history do we have that might help us? How do we bring strangers into the fold? It's time to break the Hopeaine habit of waiting for any solutions to come from the Central Planning Committees in Washington and Wall Street.
We Don't Need Them. They need us. The rich get richer because we buy their stuff and work for them. Humans survived for thousands of years without "jobs". There is plenty of work that can be done for each other without any input from On High. http://dissidentvoice.org/Nov05/Carpenter1102.htm
Relatively good article! Something similar to what I'd write but less emphasis on ethnocenric, Eurocentric ways! Much to learn from the indigenous uncolonized people of the Pacific and this hemisphere before Europeans showed up!
You are so correct! The human race is not tied to forms of government that are destructive and inequitable. We have plenty of examples of peoples who have lived in a sustainable manner for thousands of years. But they are not going to be around much longer. The cancer of greed is very quickly killing not only the human species, but thousands of others.
Very well said. Thank you.
IF U.S. GOVERNMENT DOES NOT CARE WHY SHOULD THE 99% CARE? ARE WE FOOLS?
The so-called governmental "austerity" policy effectively shifts the burden of cost, sacrifice, pain & punishment to the middle and lower working class people -- the ones who had NOTHING to do with the source of today's economic cancer of free-market capitalism, which, incidentally, is > "neo-liberal economics", and, its heroin medicine called "deregulation".
PRIVATE greed took over and has won at PUBLIC expense, so far.
If the perpetrators that caused this economic problem and profited from it [Wall Street, former U.S. manufacturing betrayers, et al] do not want to admit their systemic failure and therefore "pay the price”, then radical, non-violent, profound, consumer revolt is in order.
How?
One approach recognizes that PERSONAL CONSUMPTION makes up about 70% of GDP today. Big increase from years ago before domestic manufacturing became a traitor (that’s right “traitor”, not “trader”).
So, IF "AUSTERITY" policy is activated, then full-blown “REAL AUSTERITY” should be injected and applied by the 99%, in response.
The U.S. consumer should reply radically by STOPPING all DISCRETIONARY SPENDING and DELAYING all NECESSARY SPENDING immediately, ASAP. SPEND nothing on discretionary items. SPEND only on valid necessities needed to say alive. DELAY paying all monthly bills as much as possible. Remember: consumer spending feeds the beast and the beast is after you and us.
Austerity wanted? Austerity you will get, our way.
The very, very fragile propped-up economic system will collapse, immediately. The banking system will freeze up overnight. The debt-infested HOUSE of CARDS will topple very quickly.
PERSONAL CONSUMPTION has more weighted influence in today’s world after U.S. manufacturers betrayed its U.S. neighbors when they “left town” projecting their middle fingers proudly in the air and sporting smooth Romney and Obama con man smiles knowing intently that “fat profit” lies ahead – elsewhere -- deep in the bowels of third world labor, rape, plunder, and, blatant, outright human exploitation for private profit.
Some say STOPPING SPENDING is tantamount to economic suicide, self-destruction and it would be evil, unpatriotic, no good, and won’t work.
That view is very correct and true when "austerity" is viewed from the perspective of the 1%, the gang set to be saved by “conventional” austerity.
However, when viewed from the perspective of the innocent 99%, who loose under ANY austerity and who are being setup for a vicious slaughter, again, and this time the U.S. government NO LONGER CARES, then, it is time for accountability … summarized as follows:
"If we (the 99%) are going to litterly die from starvation, from illness emanating from no access to affordable health care, from economic policy fatal error, from a logically twisted blame-placing corporate designed solution called “austerity” on the public, then, YOU are COMING down WITH US, Mr. 1%. NEVER are we GOING ALONE on this one. Cough-up and pay for YOUR failure, YOUR error, and, YOUR crime, OR suffer its consequences WITH US.”
Amen.
"Firing teachers, cops and government clerks will, for sure, reduce public spending."
I don't see a lot of cops being fired. But I would certainly welcome such a trend.
A fairly right-wing old friend of mine who's angry about high real estate taxes in NJ told me that when her town of Closter tried to reign in local police expenses, that the cops all showed up to the meeting(s) packing their pistols & acting in an intimidating way - Why can't we just put those fascist pigs in prison & start over???!!! The whole deal they've got ( & all over the usa) with using a padded last year of employment's OT to determine their pension is so fucking criminal.......I'd vote to fire 'em all, though I don't live in NJ..... think I'll go watch Rambo again....
I caught that one too. Heh, yeah, go ahead and fire the pigs...the 1%'s public security source. All they seem to do is bust pot smokers and harrass legitimate protesters anyway.
Okay, I invite any LEO (law enforcement officer) to do what they were hired to do and arrest Bu$h, Cheney, Obama, Rice, etal. Go on...pick your choice or all of the above! They have openly admitted to committing various felonies under U.S. law. In addition there is more than abundant proof of their crimes against both humanity and society.
What's the problem? Are they exempt from the laws you bust us for everyday? Comeon tuff guys and gals...go git em!
There is no doubt that being a cop can be very dangerous. The reason they are called pigs is because they are fat and lazy. If they were doing their jobs (as some of them actually do) they would be heros and worthy of acclaim.
Rather than the passive metaphor of the wax to drown the out the sirens' lure, why not Odysseus blinding the Cyclops with a stake through the slave master's eye? We need economic justice. This means dealing blows to not just the rich, but the wealthy, those who truly rule.
We don't need austerity. We need an uprising. But we have enough people in the USA doing well enough, and well enough disconnected from the more down trodden, to continue the economic and political war mongering policies of Obama, just because they fear the lunacy of the republicans. Sure, those lunatics might hurt a lot of people, but we know for a fact Obama has hurt and will continue to hurt untold numbers of people. Brown-skinned people, I will admit, but people nevertheless.
For generations Americans have ignored the suffering of the brown-skinned people around the world. Americans believe God has given them this right, a right they earned over hundred of years of owning slaves, of slaughtering Native Americans, of dehumanizing brown people around the world. What difference can the suffering of a few million more brown skinned people in Korea, Vietnam, Central American, South America, Africa, the Near East, Southeast Asia, etc., make?
So liberals white people, and many blacks, too, suck up to Obama, despite the fact he slaughters innocent Muslims every day of the week. To Americans, the "other" has no value.
Depends on what you mean by austerity. The planet has a fever and carbon emissions must be reduced. For most prosperous nations and individuals that equals a kind of austerity. I'm all for taking most of the money from the few to foster a transition, but if all you do is keep burning up forests, filling the air and water with toxics, and trying to keep this carbon intensive model alive, it would just be trading one style of insanity for another. First cut the dumbest stuff, large military, drug war, coal and nuclear power, carbon agriculture, usury rates higher than 9% . Start transition to green economy, decentralization. Create tax reduction zones for green economies to allow new models to emerge. Cut broadcast TV to maybe 8 hours for 3 days a week.
Wasn't David Cay Johnston recently also a writer on economics for the NYTimes? If so, why does his CD bio fail to say so? I once worked for the NYTimes, but they allege no record of it!
In any case, the article reflects classic Keynesianism, pure and simple. For the "economy" to grow, if the Consumer is not spending or cannot spend, then the government must spend.
Look under the hood!
If a tax-starved U.S. government must spend to prevent an Eternal Recession (which The Great Depression threatened), there are two basic choices: borrow from the banks, or borrow from yourself. In the present case, the FEDERAL RESERVE has chosen to borrow from the banks, and then loan money back to them at interest rates lower than inflation rates. The Presumptive Claim is that the banks can then loan to the "real" (Main Street) economy. But they aren't doing that. There is now at least three years of evidence for this assertion. The banks are making a killing while claiming that they are broke due to the "debt crisis."
Keynesianism worked to stimulate the economy in the 1930s because its implementation started at a time when the government had virtually no debt. When the government is already in trillions of debt, the equations change.
This is why "Liberals" have no political answer to "Austerity" for The West. Because they have no valid economic alternative.
Ultimately, what is needed is a Radical Redistribution back to the tax levels on the rich (which both rich Roosevelts promoted!), and a recognition that neither the Growth Paradigm nor the Economic Sustainability Paradigm is any longer possible. The real question is, How do we "intelligently design" a drastic reduction in our consumption---a consumption most of us sense as excessive?
It is January in SW Indiana. My daffodils have grown to four inches out of the ground. We really do need a New Austerity. Just anything other than its meme as presented by the proverbial MSM.
Next Chapter: A discussion on a new "Labor Theory of Value...", updated to include machines and computers... or why Human Labor need not be obsolete, but required!
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the only reason spending is a problem is military spending. or to quote r.b. fuller, the conversion of human life/interaction from "livingry to killingry".
Nope. Keynisianism is based on the idea that the gov spends when the economy is in the toilet and no one else is spending. BUT, when the economy is doing well and everyone else is spending the gov MUST go into austerity and cut gov spending, raise taxes and rack up the revenues . That way the gov won't run up a debt at all.
The top 1% of 1% of Americans have a combined Income of $873 trillion. Please contrast that with the only $15.2 trillion national debt. The 1 of 1% could pay the national debt and not even miss it.
A lot of our debt has resulted from tax cuts that they wallowed in.
What we need to do instead of austerity is to raise the taxes on the rich and reduce the debt. Tax corporations at a higher rate, penalize corporations that move jobs overseas, raise import tariffs to encourage US manufacturing.
Presumably you meant 'wealth' rather than 'income'?
If this is accurate, this would make a VERY effective sign for occupiers and other demonstrators to carry. And for letters to the editors, etc. It's succinct and powerful. And a number of artists can graphically depict this. If I'm calculating correctly, approximately 30,000 "Americans" own $870 trillion of OUR national wealth. Obscene in and of itself. $15 trillion debt can be wiped out immediately ... without hurting those thieves one bit. Implementing a just (moral) tax policy should be easy if people can be shown this simple fact.
There would then be no reason for the right wing to continue to whine about the "terrible debt" and we could then get on to implement fair and just wage policy.
How better to beat off your competition than to lure them into false austerity which will never accomplish what it's touted to accomplish. Let the tag sales of government infrastructure begin. They have the money to buy as long as the price is low enough not to change the lasting dynamic of the 01% haves over the 99% have nots. Why are our governments giving credence to anything the power brokers at Davos have to say? Because like clueless "teaparty" members we've elected officials which are part of or aspire to be part of the Davos elite.
Much like King Midas' dilemma, balance sheet wealth - legal ownership of massive assets - quickly becomes meaningless without the labor required to maintain and operate those assets. The best means to control the labor that gives those assets value is to control the government, the law and the enforcement agents. Otherwise, the riff-raff will think they have a say in the matter.
(Be sure to have some good slogans; Freedom... Right to Work.. American Dream... )
This argument is essentially the insane answer to an insane idea by a sane man who has intelligently and precisely advocated reform without success. We have many economists who seem irretrievably linked to the old battle between laissez faire economics (currently incarnate as the ideas of Milton Friedman) on one side and Keynesianism (watered down since WW2 and manifest in government bankruptcy inEurope and the US) on the other side. This battle goes back through American history to the earliest days. You can see it in the early Aerican battle for fair land prices and limits on royal land grants through the battle between silver and gold currency up to its current struggle between the last holdouts of socialism/strong labor and absolute corporate dominance. All the time the "expansion" and "growth" of both of these approaches relied on the availability of cheap resources invariably linked to economic or military colonialism and the sharp divide between rich and poor nations. The cheap resources are gone and the rapid and heedless rate of their extraction has accelerated many massive global environmental problems. Nether Keynsian nor Friedmanite economics address the foundations of planetary well being which are being undermined. Many good writers and economic thinkers have understood this including (in my limited knowledge) Richard Heinberg, Wendell Berry, Nicole Fosse, Bill Mckibben, Terry Williams, Vandana Shiva, and now Naomi Klein. It seems that MSM writers have without exception never heard of any of these writers or have not been willing to absorb such global thinking as they represent. So the insane argument goes on as though it doesn't matter what you spend energy and wealth to build, only that resources be extracted and moved at sufficient speed and quantity to keep all lifestyles, all institutions, all waste, all movement going in something like their current arrangements. It produces a world where every aspect of existence is measured in imaginary units of economic power and billions of years of evolutionary wisdom is drowned or burned up for a few dollars. This is a toxic and cancerous madness. The economists of this worldview are part of the age of specialization which is an expression of the factory model of assembly line production; it tries to divorce economics from the evolutionary wisdom and biospheric health which is the foundation of the wealth of any enduring biological community. I believe the answers will come from communities of choice who commit themselves to modeling a new way of living. Feel your way towards a community of trust, abundance and friendship.
Absolutely! Thanks for your clear thinking.
Smart spending, not austerity and blind budget-cutting, will serve us best. The smartest spending right now, in the US, is on activities that need PEOPLE to carry them out, that improve our environmental situation, that keep our dollars in the US, and that keep those dollars circulating. This spending can come from both private sector and governement, but our tax and government spending policies have to encourage the RIGHT type of spending. Most spending on manufactured goods imported from other countries is counter-productive, as are weapons spending, foreign wars, wasteful energy production and consumption, and policies that promote the hiding away of wealth and evasion of taxes.
Austerity is the bitter pill of totalitarianism. Get the masses to swallow it, and the rest becomes much easier, for they (we) have succumbed to the propaganda of fear and drunk the acid, thinking it was Kool-Aid.