Fiscal Austerity

Ever wondered what the term means? typed into Google it gives “About 1,400,00 results” in 0.35 seconds.

Top of the list is Wikipedia:

In economics, austerity is a policy of deficit-cutting, lower spending, and a reduction in the amount of benefits and public services provided. Austerity policies are often used by governments to reduce their deficit spending while sometimes coupled with increases in taxes to pay back creditors to reduce debt. “Austerity” was named the word of the year by Merriam-Webster in 2010.

There is much else besides, some interesting, some incomprehensible, some foolish. Of the latter, this gem is perhaps without peer:

some European experts have argued that, due to budgetary shortcomings, the year 2011 could mark the end of an era of government engagement in the economy started with the New Deal in 1933 that saw a massive deployment of public resources and the advancement of state ownership across (formerly private) industries and infrastructures throughout the Western world. . . .

If the American or British instances are any guide, shrinking government is a non-starter. Greece, Portugal and Ireland have begun to shrink but only under the duress of the EU financial authorities. Only Ireland has much chance of financial integrity and that owing to its unusual array of exports, particularly pharmaceutical products, as well as recently reduced interest rate on its loans from the EU.

In the British instance borrowing continues at around £3bn per week. The Australian government, overseeing an unemployment rate of (now) 5.1 per cent continues to borrow at a rate of $Aus50bn for the current financial year (1911–12).

Geoff Riley, some time Head of Economics at Eton College, on An A Level Economics Blog, tuto2u, writes:

Fiscal austerity is a term in common use in the media at the moment. It refers to decisions by a government to reduce the amount of government borrowing (i.e. cut the size of a fiscal deficit) over a period of years. Fiscal austerity normally involves a combination of measures including increases in the overall burden of taxation and cuts in either the real level or growth of government spending on state-provided goods and services.

He then offers several arguments for and against current UK policy, for some invoking the sacred name, Keynes.

Nouriel Roubini in The Financial Times, remarked a few days ago:

Until last year policymakers could always produce a new rabbit from their hat to trigger asset reflation and economic recovery. Zero policy rates, QE1, QE2, credit easing, fiscal stimulus, ring-fencing, liquidity provision to the tune of trillions of dollars and bailing out banks and financial institutions – all have been tried. But now we have run out of rabbits to reveal.

Roubini declined the self-evident invitation to say that not only had “all been tried” but that all had failed. That, evidently, was a logic too far. On the contrary, he argues:

The best bet is for those countries that have not lost market access – the US, UK, Japan, and Germany – to introduce new short-term fiscal stimulus while committing to medium-term fiscal austerity.

The definition of insanity for Albert Einstein was this: “doing the same thing over and over again and expecting different results.” Groucho Marx once remarked: “I have learned from my mistakes. Now I can repeat them perfectly.”

So it is with economists, journalists, commentators and the governments that have bought the Keynesian fantasy of seeming to produce something from nothing. The only austerity about all of them, a handful of honorable persons excepted, is their economy with the truth.

Someone once remarked that the truth with set you free. Yeah, right. Electoral disaster more like.



There are no comments on this post.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: