Defining Austerity

The most stupefying defence of austerity is that it is not being practised. And if it is not being practised, how can one claim that it failed? Austerians point to high deficits in Britain, in Spain etc. as evidence that, indeed, austerity was in the eye of the beholder rather than practised policy. I can think of no better example of motivated economic illiteracy in the midst of this Crisis. The purpose of this shortest of posts is to put things straight.

Austerity is not about low deficits. Low deficits are an end; an objective. Austerity is a policy; a means-to-an-end, where the end is low deficits. Austerity is thus defined as the attempt to reduce the deficit by cutting spending and boosting taxes.

Now, the trouble with austerity is that, when implemented in a time of private sector deleveraging (i.e. when firms and households are struggling to cut down on expenditure and reduce their indebtedness) austerity is self-defeating as it reduces tax revenues faster than (or as fast as) it shrinks expenditures. So, the result of austerity can often result in high deficits and invariably fails to reduce overall debt levels! Precisely what happened in Spain, in the UK, everywhere it has been practised since the Crash of 2008.

To sum up, austerians point to sustained deficits and debt levels as evidence that austerity has not been practised. The reality is precisely the opposite: The stubbornness of deficits and debts is the result of austerity that was implemented energetically and failed spectacularly – as predicted.