“Austerity”
Are you scared?
You should be.
We have all heard the word “Austerity” in the past few years, normally referring to the events in various EU countries. It’s hard to find a story about “Austerity” without it containing other frighting aspects, such as riots, unemployment and massive debt.
Here in the United States the Left has begun denouncing Paul Ryan’s plan and the GOP for supporting what they call “Austerity Measures” against spending. I feel that this would make the rest of the world laugh a bit at our hysterics, since Paul Ryan’s extreme budget proposal doesn’t call for actual cuts, but instead calls for decreases in the increase of spending for the coming years and lower taxes on all incomes.
This falls into the same category as saying that since we have too much food to eat we should start trying to fuel our cars with it.
So, let’s look at what true “Austerity Measures” look like…
The EU has followed the US as we have sunk into the Recession, but since then the US stopped its descent and has started to move back towards the prosperity it enjoyed prior to the fall, even if it is moving very slowly. However, most EU nations have struggled to stem their descent into the fiscal pit. Countries like Spain, Portugul, Ireland, and Greece have been in a never ending crisis for years now, with no end in sight.
The driving factor behind the continued decline of these countries is how out of balance their public spending has been. It was easy to continue to increase the expenditures of the governments when it was the boom times during the 90’s and 2000’s but now that the bubble has burst they have realized that they never had the means of paying off the public debt they took on, the recession just made them realize it sooner.
Meanwhile, countries such as Germany have insisted that in return for bailing these failing countries out they must get control of their finances. Understandably Germany doesn’t want to finance the pension funds of Greece’s civil servants forever. However, the generations of workers in these failing countries who promised themselves these benefits do not agree with the Germans.
So in order for the Greeks and others to receive the bailouts they so earnestly want, they have had to reach agreements with their would-be creditors. As conditions for these loans, Greece must agree to reduce its public expenditure and increase revenue.
These are the “Austerity Measures” that are so feared.
Lowering public expenditures is a common sense goal. Obviously there is a problem with spending, otherwise these nations would not be so far in debt.
But the problems that took decades to create cannot be fixed over night by cutting some dollars off the garbage collector’s salary.
A government that engages in a crash dive of cutting spending is shifting the burden of the indebtedness to private citizens. By cutting spending on public jobs the government will then force the people in those jobs further into debt, thereby saving a few dollars on the government budget but increasing the strain on individuals. By the time the government is forced to cut spending to survive, its citizens will already be suffering from a Depression. You can’t cut government spending that is supplying people with some income and expect the nation to suddenly prosper. Instead you will drive people who relied on government jobs to relying instead on government handouts.
This will only increase the severity and duration of the Depression.
Cutting spending is obviously one of the major factors in avoiding a complete default or the coming of another crisis. This must be done as a measure to secure the future against continued indebtedness. Long term problems can’t be fixed by cutting salaries now. The focus should be on cutting long term expenditures and getting the economy growing so that when the effects of the cuts are felt in the future, there will be other opportunities for those affected instead of turning to government handouts.
The second big feature of “Austerity Measures” is raising taxes.
This is where Big Picture and Small Picture views collide. If a family or individual is suffering from major debt and facing bankruptcy, a new source of income would greatly improve the chances of getting free from debt.
Far too many people apply the same logic on a national scale.
National governments have two sources of money, taxes and loans. Just like individuals, governments that are heavily indebted have trouble getting loans and the only way they can get one is to conform to the demands of the creditors which normally include raising the revenue of the government.
So the government turns to raising taxes to try and balance its books, but we can apply the same logic that we just used to see how ineffective this method is.
If the government cuts spending, it hurts the citizens by trying to help itself at their expense. If the government increases taxes, it hurts citizens by trying to help itself at their expense.
Raising taxes on private citizens sends the signal that the government is going to try to fix its problems by squeezing everything it can out of its people. Strangely enough… people do not react well to being told they must sacrifice more during a Depression.
The only way out of a Depression is to start the economy on the path to growth. Increasing taxes on people already struggling does not create new jobs, businesses or opportunities. Raising taxes will continue the circle of Depression. People are struggling so they rely on the government for help and the government struggles and looks to the people to fund it. The only way out is to break the cycle by giving each individual the chance to improve his situation. Individual prosperity will spread through out the country as more people are employed by the successful and stop depending on the government. The government’s situation will improve as its revenues increase due to the expansion of productivity and fewer people depend on the government handouts.
The EU recovery has been a continuing failure due to the insistence on following these ideas. When they fail… they try bigger.
Here in the US the political debate has centered on the best way to get the economy moving forward at a fast pace. The GOP plan, notably the plan put forward by Paul Ryan, is centered on cutting future expenditures and reforming entitlement programs coupled with tax cuts across the board. These have been denounced as “Austerity” by many of its opponents.
Meanwhile, Barack Obama has continued touting his plan for getting the economy moving and the debt reduced.
http://www.cbsnews.com/8301-3460_162-57508978/obama-wont-compromise-balanced-approach-on-budget-despite-gridlock/
“You can’t reduce the deficit unless you take a balanced approach that says, ‘We’ve gotta make government leaner and more efficient,'” the president said. “But we’ve also got to ask people – like me or Gov. Romney, who have done better than anybody else over the course of the last decade, and whose taxes are just about lower than they’ve been in the last 50 years – to do a little bit more.
I have to agree with the President that the government has become overgrown and bloated. But coupling immediate spending cuts with taxes hikes (even if they are only on the top 1 percent) is “Austerity Measures”. No matter how classy the argument for these measures is, the result is still the same. If these measures have failed to deliver the EU from the depths of depression, would should it make us prosperous?
The purpose of money is to create more money. Individuals use their money to create jobs or buy food, both of which keeps the money circulating, affecting as many people as possible. Our money is not meant to be sent to the government and passed through the various agencies. This does not create wealth, it creates dependency.
Getting people less dependent on the government and creating wealth must be the goal of the moment. This is the perfect time to make fixes in the long term issues we face and to institute a leaner version of the government for the coming years. But the current focus must be on clearing the way for the individual to bring themselves out of the Depression and improve all of our lives in the process.
Europe has proven that their methods of instantly decreasing public spending and increasing taxes is a sure way to compound the existing problem and ensure that it won’t go away.
If it isn’t working in the EU, why would it work here?
The only method that can be expected to work is creating long term solutions for our public spending and spurring current growth with tax decreases to encourage people to push the economy forward.
We are constantly told that we can not go back to the policies that got us into this crisis, but are the policies that are currently failing everywhere they are tried a better solution?
Categories: Blog Posts
Stovepipe Sentinel 
Enjoyable read and interesting perspective. Thanks for sharing.