Austerity? Of course – but only for the poor!

29 September, 2012 at 12:50 | Posted in Economics, Politics & Society | 5 Comments

The model is dead; long live the model. Austerity programmes are extending the crises they were meant to solve, yet governments refuse to abandon them. The United Kingdom provides a powerful example. The cuts, the coalition promised, would hurt but work. They hurt all right – and have pushed us into a double-dip recession.

This result was widely predicted. If you cut government spending and the income of the poor during an economic crisis, you are likely to make it worse. But last week David Cameron insisted that “we will go on and finish the job”, while the chancellor maintained that the government has a “credible plan, and we’re sticking to it” …

What is presented as an economic programme is in fact a political programme. It is the implementation of a doctrine: a doctrine called neoliberalism. Like all such creeds, it exists in its pure form only in the heavens; when brought down to earth it turns into something different.

Neoliberals claim that we are best served by maximising market freedom and minimising the role of the state. The free market, left to its own devices, will deliver efficiency, choice and prosperity. The role of government should be confined to defence, protecting property, preventing monopolies and removing barriers to business. All other tasks would be better discharged by private enterprise. The quest for year zero market purity was dangerous enough in theory: distorted by the grubby realities of life on earth it is devastating to the welfare of both people and planet …

The neoliberal hypothesis has been disproved spectacularly. Far from regulating themselves, untrammelled markets were saved from collapse only by government intervention and massive injections of public money. Far from delivering universal prosperity, government cuts have pushed us further into crisis. Yet this very crisis is now being used as an excuse to apply the doctrine more fiercely than before …

A programme that promised freedom and choice has instead produced something resembling a totalitarian capitalism, in which no one may dissent from the will of the market and in which the market has become a euphemism for big business. It offers freedom all right, but only to those at the top.

George Monbiot

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5 Comments »

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  1. Great article, I completely agree that the neoliberal hypothesis has been disproved. I’d be really interested in what you think of my recent blog:http://wp.me/p2JUeq-n

  2. Dear Lars. It would be very interesting to read your thoughts regarding the fiscal austerity expansion theorists and their work on their field, mainly that of Alesina:

    http://www.economics.harvard.edu/faculty/alesina/files/Output%2BEffect%2BFiscal%2BConsolidations_Aug%2B2012.pdf

    Personally i think it’s an important task for Post-Keynesian economists to counter this strand of papers on a technical ground and show that both expenditure and tax based austerity is negative for economic growth.

    • I haven’t actually taken my time to read the latest Alesina paper. After having read the Alesina & Ardagna (2009) paper on fiscal austerity expansion – which, to say the least, didn’t impress me at all, with its recurrent omitted background/complementary/enabling variables, that more or less from a methodological point of view nullified the scientific value of their analysis. Although the paper itself was full of caveats and convoluted qualifications, it was from more official quarters (EU) taken more or less as a confirmation of a (in my view, senseless) austerity policy.
      But, OK, bygones are bygones, I’ll give the new paper I try and if time allows I’ll be back with a comment on it.

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  4. Bill Mitchell -Eurozone policy makers destroying prosperity
    Bill Mitchell is the Research Professor in Economics and the Director of the Centre of Full Employment and Equity at the University of Newcastle, Australia. http://bilbo.economicoutlook.net/blog/?p=21510


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