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Austerity in the Midst of a Depression - Mad, Bad and Immoral

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Right wing politicians and commentators have always been able to appeal to the lowest instincts of human nature in a way that chimes with the aspirations of the many. Take, for example, the issue of the savage cuts in government spending; they are presented in the guise of a "family finances" argument.   As a family "wouldn't you want to pay your debts and live within your means?" is an appealing argument.  

There is, of course, a crucial difference between running a household budget and running the country's finances.  

If you are lucky enough to be employed, and you discover that your expenditure exceeds your income or you are in debt, the right thing to do is for your family to economize, so that it lives within its means and pays its debts.   

The income of a government, however, comes from the taxes we pay, and that depends on the economic activity in the country and the level of employment. In a recession economic activity is down, unemployment is up, and thus the tax intake goes down.  

Austerity and cuts will depress economic activity even further and unemployment will increase, thus reducing government income.   Moreover, the rise in unemployment has to be paid for by the government to ensure that people do not descend into the sort of poverty that currently exists in some developing countries.   Austerity, therefore, hits the economy with a double whammy, low income for the government and greater expenditure.  

"The doctrines that are animating core economic policies [on] both sides of the Atlantic are in fact absolutely bonkers" , so said Paul Krugman, the Nobel Prize-winning economist. "It is actually deeply destructive policy to pursue austerity in the midst of a depression".   A collective madness seems to have gripped our politicians.

It is clear to anyone with an open mind, willing to be guided by reason, that severe cuts and austerity as a medicine to cure the patient are doing nothing of the sort; actually they are killing it. The evidence is all around us with the blighted lives of tens of millions, particularly the young, in the eurozone.  

Of course, as pointed out by Paul Krugman, the eurozone has the additional problem of having "a single currency without a single government". Many of those governments, Greece, Ireland, Spain etc... are reluctantly being pushed into the economics of austerity and cuts by the German government.

It is galling that the UK government has embarked on this route voluntarily, as if this is some sort of a virility test to show that the "Brits" are more macho than the rest of Europe.   Or could it be that the mantra of "shrinking the state" and "the market knows best" is trumping reason once again.

Running the economy of a country is not the same as running a household budget, Mr. Osborne. Look at the evidence; listen to the experts; perform another U-turn; change course and lay the foundation for a sustainable recovery, and with it improve the lives of millions.

 

Dr Adnan Al-Daini took early retirement in 2005 as a principal lecturer in Mechanical Engineering at a British University. His PhD in Mechanical Engineering is from Birmingham University, UK. He has published numerous applied scientific research (more...)
 
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In this case the fear of contagion to an unknown e... by Paul Repstock on Tuesday, Jun 5, 2012 at 9:44:50 AM
Thank you for a really insightful comment. I suppo... by Adnan Al-Daini on Tuesday, Jun 5, 2012 at 11:04:51 AM
I totally agree with you, Dr. Al-Daini. Cutting sp... by Howard Schneider on Tuesday, Jun 5, 2012 at 1:45:16 PM
Thank you for the compliment; it is appreciated.... by Adnan Al-Daini on Tuesday, Jun 5, 2012 at 2:48:02 PM