Austerity: Why and for Whom?

Clearly, the global capitalist crisis that started in 2007 will be
neither short nor shallow. The government rescue of the US financial
industry pumped enough extra money into the economy and sufficiently
reduced interest rates to give banks and the stock market the heavily
hyped "recovery" that started March 2009 and is now over. What is
worse, their recovery never reached much of the rest of the economy.
Efforts to broaden the recovery or extend it beyond one limp year have
failed. That failure cost Washington trillions in borrowed funds from
lenders who now demand guarantees that those loans will be repaid to
them with interest. Similar demands now confront many other
governments who likewise borrowed heavily to cope with the crisis in
their countries.

The guarantee demanded by lenders is "austerity." Lenders want
governments to raise taxes or cut government spending or both.
Governments will then have more money available to pay interest on
loans and to repay those loans. Governments that fail to impose
austerity will face higher interest on new and renewed loans or will
be denied loans which would cripple those governments' usual
operations. Austerity is yet another extreme burden imposed on the
global economy by the capitalist crisis (in addition to the millions
suffering unemployment, reduced global trade, etc.).

Who are these lenders demanding austerity? The globally active
financial enterprises -- mostly banks that collapsed in the crisis and
were rescued by their home governments -- are, together, also major
lenders to those governments. Banks own their own governments' debts
but also other governments' debts. For example, major banks in France
and Germany are among the Greek government's chief creditors. US banks
and related financial enterprises hold significant amounts of other
governments' debts and other nations' banks own much US government
debt.

Global capitalism's 2007 crisis froze the credit system that sustains
capitalist production. Private borrowers -- enterprises and
individuals - could no longer repay loans because their investments
had generated too little and their incomes had failed to grow enough.
Banks had failed to properly assess risks in deciding how much to lend
to whom. They therefore stopped lending to private borrowers because
that had become too risky. As private borrowers defaulted and new
lending atrophied, banks' capital and their profits collapsed. The
whole capitalist system ground toward a halt because credit became
unavailable. The only solution most leaders in capitalist countries
could conceive was to unfreeze credit by having the government
guarantee bank solvency, guarantee many private debts, invest
massively in and lend to private banks, and become the ultimate
borrower of a huge portion of loanable funds. Banks everywhere lent to
governments because it had become unsafe to lend to almost anyone
else. Governments everywhere used the borrowed money to rescue banks
and other financial enterprises.

This peculiar "nationalization" of debt served capitalism by having
the government temporarily function as the lender and borrower of last
resort. Nationalization unfroze the credit system sufficiently to stop
the crisis from collapsing global capitalism. Few policy-makers (and
few others) in 2008 and early 2009 worried much about the consequences
of so massively increasing government debts. The looming possible
capitalist system collapse overwhelmed worry about any "longer run."

The international banks that were rescued (from their own bad loans
and investments) by governments now worry that governments they lent
to won't be able to repay those loans. Banks threaten to make further
loans much more costly or even impossible unless those governments
impose "austerity." Most political leaders recognize that the banks'
threats, if carried out under their watch, would end their careers
quickly and badly. All capitalists see in possible government defaults
the specter of another credit freeze with terrifying ramifications for
global capitalism. Still worse for those banks: governments in default
would not likely be able to borrow again to rescue banks again.

Nearly all current political leaders of major capitalist countries
responded positively to the banks' demand for austerity (as in
Canada's recent G-20 meeting). This immediately raised a basic
political conflict always simmering inside capitalism: who will pay
increased taxes and who will suffer decreased government spending?
Militants in Europe have already marched and struck against austerity
as an unacceptable plan to make workers pay to fix capitalists'
crises; more general strikes are set in many European nations with a
Europe-wide general strike now scheduled for September 29. Meanwhile,
capitalists work with politicians to define as "reasonable in crisis
times" austerity programs mixing both tax increases (chiefly on
workers) and spending cuts (chiefly on workers).

An Athens trucker says, "Public employees here don't work hard enough,
so it is reasonable to cut their pay." A Parisian clerk thinks it
"reasonable to postpone the official retirement age a few years; we
all live longer now." A Minneapolis office worker agrees that it is
"reasonable, in crisis times, to get by with fewer public services." A
New York laboratory technician supports a new tax on cell-phones as
"probably reasonable; after all, people overuse them." Remarkably,
such notions of "reasonable" are silent about other possible and, to
say the least, more "reasonable" forms of austerity.

Let's consider some alternative "reasonable" kinds of austerity (i.e.,
austerity for others) and then question austerity itself. Serious
efforts to collect income taxes from US-based multinational
corporations, especially those who use internal pricing mechanisms to
escape US taxation, would generate vast new federal revenues. The same
applies to wealthy individuals. The US has no federal property tax on
holdings of stocks, bonds, and cash accounts (states and localities
levy no such property taxes either). If the federal government levied
a 1 per cent tax on assets between $100,000 to 499,000, and 1.5 per
cent on assets above $500,000, that would raise much new federal
revenue (everyone's first $100,000 could be exempted just as the
existing US income tax exempts the first few thousands of dollars of
individual incomes). Exiting the Iraq and Afghanistan disasters would
do likewise. Ending tax exemptions for super-rich private educational
institutions (Harvard, Yale, etc.) and for religious institutions
(church-goers would then need to pay the costs of their churches)
would be among the many other such alternative "reasonable" austerity
measures. Comparable alternatives apply -- and are being struggled
over -- in other countries.

A capitalist system that generates so massive a crisis, spreads it
globally, and then proposes mass austerity to "overcome" it has lost
the right to continue unchallenged. Should we not be publicly debating
whether America (and the world) might be better served by going beyond
capitalism? Can we not learn from capitalism's repeated cycles
(failures) and change to a new, non-capitalist system? Having learned
hard lessons from the first socialist attempts during the last century
in Russia, China, and beyond, can we not rise to the challenge to make
a new attempt that avoids their failures and builds on their
strengths? When better than now?