Relevant and even prescient commentary on news, politics and the economy.

Why austerity now?

Michael Hudson at New Economic Perspectives points us to the difference between the overall economy and the financial sector:

When politicians let the financial sector run the show, their natural preference is to turn the economy into a grab bag. And they usually come out ahead. That’s what the words “foreclosure,” “forfeiture” and “liquidate” mean – along with “sound money,” “business confidence” and the usual consequences, “debt deflation” and “debt peonage.”

Somebody must take a loss on the economy’s bad loans – and bankers want the economy to take the loss, to “save the financial system.” From the financial sector’s vantage point, the economy is to be managed to preserve bank liquidity, rather than the financial system run to serve the economy. Government social spending (on everything apart from bank bailouts and financial subsidies) and disposable personal income are to be cut back to keep the debt overhead from being written down. Corporate cash flow is to be used to pay creditors, not employ more labor and make long-term capital investment.

The economy is to be sacrificed to subsidize the fantasy that debts can be paid, if only banks can be “made whole” to begin lending again – that is, to resume loading the economy down with even more debt, causing yet more intrusive debt deflation.

This is not the familiar old 19th-century class war of industrial employers against labor, although that is part of what is happening. It is above all a war of the financial sector against the “real” economy: industry as well as labor.

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I Hate Austerity

What’s your mental image when you hear the word “austerity?” Do you see in your mind’s eye a few Grecian elders standing around in simple white robes, or monks in a monastery having their evening meal of a potato, a small bowl of soup and a crust of bread, while they listen to the 12th Psalm ? or perhaps you imagine a bank manager in a shabby suit with trouser creases nonetheless sharp as a knife, whose old shoes are polished to a mirror-like shine? or his sister the librarian with her hair tied back in a bun so tight you could crack eggs on it?

Of course these are all stereotypes, but when we pick a powerful word like “austerity” to define a culture-wide plan of action, all of those stereotypes are consciously considered by the person designing that plan of action.

Austerity is one of several American images of virtue. Austere people are not wasteful, they save their money, they use the same dining room table and dishes for 50 years, they subscribe to Consumer Reports — and take notes. They steadily save 20% of their income for decades on end, and they buy with cash when they buy it all. They think about what they’re going to say before they say it, and often say little or nothing.

There are several virtues, depending on how you count. Faith, Hope and Charity are the high theological virtues, and Fortitude, Justice, Prudence and Temperance are the others, the so-called Earthly Virtues. (Chastity comes in there somewhere, also, if I remember correctly, but that’s probably not part of this essay.)

In any event, an austere person probably exhibits all four of the earthly virtues, and this doesn’t make him a very desirable consumer. So why are we again being told that the ownership society ought to be replaced by the Benedictine society, or possibly something along Buddhist lines?

Ah, but you see this particular “austerity” is only intended to be temporary, partial austerity, nothing permanent. It’s not austerity for all, just austerity for you.

Since I am a boomer, I know legitimately “austere” people, although they might not think of themselves that way. Most of them are 20 or 30 years my elders, and their austerity sprang from a time when you save your money because if you didn’t have a little put away, there was no likelihood that anyone else would help you when you needed it, and you were almost certain to need it. Spending — especially North American hobby spending — would have been seen by The Austere Generation as a ridiculous waste of time and money. Example: my high school best friend’s parents, who built their own house after World War II, are still in it, with the furnishings and furniture practically unchanged over the past 50 years. Clean as a pin, watertight above and below, a little house that needs and knows nothing of Extreme Makeovers.

It strikes me that business would not intentionally want a country full of austere people. They’ve certainly worked hard against it for decades. And government doesn’t benefit from it either, at least in the long run. In a consumer-driven economy, austerity on the part of the people means lower GDP, lower tax revenues, and animal spirits in hibernation. So, why this pervasive need to talk up the virtue of austerity?

Because, I think, the Austere American also has other qualities.

They talk little, they complain little, if the crop fails they just wait for the following year and try again. Great misfortune is treated as an act of God and an occasion to practice fortitude, another one of those virtues. The word “laconic” was invented for them. All of them prefer silence to noise, and they are slow to anger. (Remember, I’m still working with the stereotypes.) They are not dramatic, and very inclined to see their job as keeping their family and community functioning despite downturns.

In other words, I think what is wanted is not the saving, the careful judgment, or the patience of austerity. What’s wanted is the reluctance to complain in the face of loss — the loss of investments, the dialing back of pensions and salaries and so-called “entitlements”, and the erosion of civic freedoms.

What exactly does “austerity” mean? Here, from the Merriam-Webster dictionary we find:


Etymology: Middle English, from Anglo-French, from Latin austerus, from Greek austēros harsh, severe; akin to Greek hauos dry — more at sere. Date: 14th century

1 a : stern and cold in appearance or manner b : somber, grave
2 : morally strict : ascetic
3 : markedly simple or unadorned
4 : giving little or no scope for pleasure
5 of a wine : having the flavor of acid or tannin predominant over fruit flavors usually indicating a capacity for aging

“Harsh, severe, dry, stern and cold, strict, simple, giving little or no scope for pleasure.” Does that sound like a fun social policy? The only glimmer of hope in here has to do with wine.

Now, this usage is hardly new. To see how the word is used in government pronouncements, have a peek at the very useful Google News Archive search for austerity:

The word has long and consistent use over time, but golly — look at that jump for 2010.

Nip into any timeframe in that link to see what the word means in the news of the day, and it appears to always mean “no soup for you!”, i.e. cuts to public service pay, and cuts to services. The word seems to travel with other words like “riots,” and “general strikes.”

When an old farmer watches a promising crop washed away by a mid-summer flood, the correct response is patient perseverance because Mother Nature can’t be taken to small claims court. She can’t have her assets frozen and a bankruptcy panel divide up the capital among her creditors. She can’t be voted out of office.

However when a citizen watches the promises and investments of decades eroded or washed away by businesses that want the cake but not the dirty diches, or governments who want the tax contributions but not payouts for services already paid for, the old farmer’s appropriate response is not patient perseverance — not the austerity of suffering — but incisive, stern, severe demands for accountability and the keeping of promises made one or two generations before — the austerity of judgment.

“Austerity” is not a synonym for resignation. Remember the final dictionary definition? the wine that is preserved and enriched over time by the bitterness of tannin? the wine that lasts for years, and still has a bite when it leaves the bottle? That is the kind of austerity we need in the face of “austerity.”

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G-20 communique abandoning stimulus in about face

The Financial Times points us to the G-20 communique abandoning stimulus because “they recognize financial market concerns”:

Finance ministers from the world’s leading economies ripped up their support for fiscal stimulus on Saturday, recognising that financial market concerns over sovereign debt had forced a much greater focus on deficit reduction.

The meeting of the Group of 20 finance ministers and central bank governors in Busan, South Korea, also dropped proposals for a global banking levy, instead giving countries leeway to do what they thought best for their domestic circumstances.

The communiqué of the meeting made it clear that the G20 no longer thought that expansionary fiscal policy was sustainable or effective in fostering an economic recovery because investors were no longer confident about some countries’ public finances. “The recent events highlight the importance of sustainable public finances and the need for our countries to put in place credible, growth-friendly measures, to deliver fiscal sustainability,” the communiqué stated…

“Financial market concerns” are what? The economy, which is ultimately Main Street? Or profit for the industry? And how do you help your Congressman and Senator see the differences enough to help your own situation with making enough to live somewhat comfortably?

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