From Ponzi Growth to Ponzi Austerity

Austerity is meant as a belt-tightening exercise the purpose of which is to reduce debt. Pure and simple. Of course, for austerity to work one of the following two conditions must hold.

One is that you are imposing austerity on your country (i.e. hefty reductions in the public sector’s expenditure) at a time when your trading partners are growing fast. This is how Canada’s austerity (and also Scandinavia’s, even Germany’s) succeeded in the mid-1990s: the losses of public sector jobs and expenditure were immediately replaced by private sector jobs and private demand caused by the rapidly grown American economy next door (and, of course, the rest of the world that was on a growth spurt at the time).

Another scenario under which austerity might work is if, while the rest of the world is not growing robustly, austerity coincides with the creation of large bubbles within the private sector of one’s own country. This was the case of the Thatcher and Reagan Economic Miracles in the 1980s: A boom period predicated upon a growth wave underpinned by two major bubbles; one in the real estate market and one in finance.

In short, austerity can work well either against the background of a healthy global economy or of internal Ponzi Growth. Come to think of it, the two cases may, indeed, be one and the same. For the Canadian, Scandinavian and German examples mentioned above, worked only because of world growth that was fuelled by America’s twin deficits; i.e. also a case of austerity piggybacking on the hegemon’s Ponzi Growth.

To recap, the pre-2008 era was a period of Ponzi Growth which was, in turn, essential for balancing the global capitalist economy (in a manner that I have explained in my Global Minotaur). Then came the Crash and, after a short period of G20-led coordinated action, the UK and the Eurozone entered, by choice, a period of Ponzi Austerity (while the US, after a meek stimulus period, became ungovernable in November 2010 and could, therefore, enact neither stimulus nor austerity).

What do I mean by Ponzi Austerity? It is not just a case of pretend austerity of the sort that we had, say, in the UK under Mrs Thatcher, when education, health etc. were cut back with a vengeance, in austerity’s name, while the public sector’s borrowing requirement grew on the back of a massive expansion of the state’s (primarily centralised, authoritarian) activities (and all in the name of a ‘smaller’ state). No, Ponzi Austerity requires more than that. It requires the symbiosis of:

(a) large scale reductions in public services and a squeeze on the taxpayer (in the name of reining in public finances), and of

(b) a new mechanism for refinancing the debt of one branch of the macro-economy (including bank losses) by creating new unsustainable debts in some other branches.

In short, Ponzi Austerity increases aggregate debt intentionally by shifting it about the macroeconomy in the hope that the public’s eye will be distracted from all this movement, time will purchased by the powers-that-be at the expense of solvency and, in the end, those with the most to gain from taking their money out of the ‘system’ before they inevitable collapse will manage to do so, leaving the hapless taxpayer to pick up the pieces when the whole thing ends up belly-up. One only needs to look furtively at what is happening in Europe today in order to draw the unavoidable conclusion that the austerity practiced in the Eurozone today is perhaps the most glaring case of Ponzi Austerity possible.


Yesterday I participated, as a ‘witness’, in an Intelligence Squared Debate where the motion under deliberation was the rather obvious ‘Austerity is not the solution’. The advocate in favour of the motion was Oliver Kamm, of The Times, while the advocate opposing it (presumably in the belief that austerity is the solution) was Martin Vander Weyer, of the Spectator. Interestingly, as it turns out, I was called to ‘testify’ not by Kamm but by the ‘austerian’ Mr Vander Weyer. It was clear that he wanted to paint me as a Greek extremist whose rejection of Greek austerity was evidence of austerity’s importance. Obviously, I deserved all I got, since accepting to be part of these facetious Oxford Union-type, utterly childish, debates is a risk one can only blame oneself for. Still, not having managed to kill off the child in me, I enjoy these charades (and this is why I agreed to participate).

During the 90 minutes of the debate (which is curiously not available on youtube, even though the event was sponsored by its owner, Google) I was asked two questions: One by the austerian side and one by the moderator. The first question was: “You are recommending to the Greek government to say No to the austerity package and try to argue that this is not blackmailing Greece’s European partners. But is this not precisely this? Is it not blackmail?” The second question, almost an hour later, came from the moderator, Emily Maltlis, who asked something similar: “Would you like to negotiate Greece’s bailout deal with the troika? And if so what would you say to them?”

In answering the first question, I argued that austerity (as fiscal conservatism) is a total misnomer for what is going on in the Eurozone. That what we have is a Ponzi Austerity which is, by definition, jeopardising not only the Eurozone and the European Union but the global economy as a whole. This is why I am recommending that the next Greek government issues a loud and clear No! to the powers-that-be at the ECB, the EU and the IMF: someone must break this death cycle. And since our richer European partners are too timid to do so, perhaps it is the task of the government of a distraught, destroyed and disillusioned nation to do it. We have reached the point where sticking to our ‘bailout’ terms and conditions is simply impossible (nb. the collapse in the tax intake due to the destruction of Greece’s social economy). We might as well say so!