Austerity is about keeping the lid on rising government debt and making ‘the rest of us’ pay for that debt, while waiting for monetary policy to restart financial markets and for the market system itself at some subsequent point to eventually generate economic growth. The problem is that this ‘monetary policy first’ approach and path to recovery only results in recovery very slowly, with significant delays, and with repeated relapses into short and shallow recessions. Monetary policy based recovery thus takes potentially a long period of time, typically five to ten years. It may prove even longer, as Japan’s economy since the early 1990s is a prime example. Capitalists and their policy makers truly believe that the capitalist market will ‘correct itself’ in the longer run. They believe that the way to jump start that market-driven recovery is to do it via supply side policies. They believe that pumping massive money injections into the banks starts the supply side process. It’s the first step. After that, banks will lend, businesses will invest, jobs will return and consumers will spend once again. To put money directly into workers’ paychecks and consumer households first by government spending and investing (i.e. Krugman & Co. ‘Demand-Side’ view) relegates bankers and businesses to a secondary recovery position. Demand-side government spending policy means households, consumers and workers recover first, then it spreads to bankers and businesses as the former buy their products. For capitalist policy makers it is preferable to reverse that process: ensure that bankers and big businesses recover first and rapidly, then wait for the market system to eventually bring the rest along. And if it takes long, 5 years, 10 years, if the recovery is slow and intermittent, then rising government debt must be contained in the meantime. That’s where austerity policy comes in. If that debt is not contained the government debt rise may offset and even negate the monetary policy’s effect. So austerity must accompany a preferred monetary driven recovery policy. It is complementary and necessary to the primary and preferred monetary policy. To the extent that austerity policies serve this function of containing the rise in government deficit and debt, then austerity policies ‘work’. Austerity policy therefore is not an ‘error’ or a moral failing when class interests are considered. AE capitalists and policy makers are not blind fools, or excessively righteous, or ‘wicked’, as Krugman and others would suggest. It is Krugman & Co. who are blind—to the real class based origins and functional purpose of austerity policies. They think that austerity policy is about a failed strategy for stimulating the economy. But that’s not what austerity is about. Nor is it a ‘mistake’ or due to moral failings. To put it succinctly, austerity is about making the general populace and the working classes pay for the monetary policy strategy’s slow, often interrupted, and limited impact on the real economic recovery. So has ‘austerity’ failed? The answer is ‘failed for whom?’ In other words, it can’t be determined if it has failed apart from a class analysis of it. And that’s where the Krugman and others miss the whole purpose of austerity in the first place. And why are austerity policies continuing? Because so long as monetary policy continues to fail to generate a sustained and normal economic recovery, AE policymakers will continue with some form of austerity policy.
Posted on: Sun, 16 Nov 2014 16:00:07 +0000
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