Austerity never happened
17 June 2015
The gurus of the economic left are at it again: in ‘a plea for economic sanity and humanity’, a group of progressive economists led by Joseph Stiglitz and Thomas Piketty published yet another letter to condemn the austerity allegedly practiced on Greece. The initiative follows an earlier plea published in January against ‘the dogmatic insistence on debt repayment in full regardless of the social and political consequences’.
The distinguished signatories insist that ‘to condemn austerity does not entail being anti-reform’, and that ‘austerity’ actually undermines Syriza’s key reforms, namely its efforts to overcome tax evasion and corruption: ‘Austerity’, they explain, ‘restricts the space for change to make public administration accountable and socially efficient’. This is surely a scientifically and politically respectable perspective. But let me make some points from a different one.
First of all, let me contest the appropriateness of the term ‘austerity’ for what we have witnessed in the last years in the periphery of Europe. One would think that a person is austere when she is thrifty and saves part of her income, namely she spends less than she earns. Under this common sense definition, austerity is a virtue (yes, a virtue!) virtually unknown to all European governments. They all spend way more than they receive in revenues, and most of them have been consistently doing so for decades!
The fact that public opinions can seriously regard the attempt to curb overblown fiscal deficits and to slow down an accumulation of public debt unprecedented in the history of modern economics as ‘austerity’ is a clear sign of the dismal progressive spell which we’ve all been living under since WWII.
Second of all, the claims of the anti-austerity crowd are even more dubious when we move from Europe in general to Greece in particular. The idea that EU-inspired adjustment programmes forced Greece to adopt an otherwise unnecessary ‘austerity’ policy is a gross misrepresentation of what actually happened. Nobody said it better than CEPS Director Daniel Gros in a commentary last February:
‘it is disingenuous to claim that the troika forced Greece into excessive austerity. Had Greece not received financial support in 2010, it would have had to cut its fiscal deficit from more than 10% of GDP to zero immediately. By financing continued deficits until 2013, the troika actually enabled Greece to delay austerity’.
Exactly, from more than 10% of GDP to zero IMMEDIATELY. As explained in this post by IMF Chief Economist Olivier Blanchard, what is being consistently rejected by the Syriza government now is a primary budget surplus target of 1% in 2015, not exactly the ‘fiscal waterboarding’ one may expect when reading the recurrent progressive pleas for forbearance and debt relief.
Third of all, I would argue – together with many conservative economists – that the much decried austerity is nothing less than an instrument of economic liberation. Contrary to the fallacy constantly spread by progressives, austerity is not primarily about cutting, but about transferring. Specifically, it is about transferring control over productive resources from bureaucrats to individuals and companies.
Austerity does not simply mean balancing the budget by doing ‘whatever it takes’. It means balancing the budget as part of an overall reduction of public expenditure that allows people to keep more of their income and to freely decide how to spend it, instead of having government bureaucrats decide on their behalf.In other words, true austerity returns to people what rightly belongs to them and was unduly appropriated by the state in the last century of progressive drunkenness. It enlarges the scope of individual freedom and choice in our society.
Furthermore, far from restricting ‘the space for change to make public administration accountable and socially efficient’, austerity forces public administrations to limit their notorious wastes, to optimise their utilisation of scarce resources and to become more efficient.
In conclusion, the most legitimate criticism against austerity in Europe is probably that it has not really happened. Although the emphasis of ‘the institutions’, as they are now amusingly called, on balanced budgets was sound, the need for a radical restructuring of the social model that has generated Europe’s over-indebtedness was never recognised.
As we know, spending on education and health consumes 10-15% of the national income of developed countries, while replacement incomes and other transfer payments account for another 15-20%. Compared to the resources that could be freed by reorganising the provision of these services along more competitive lines, the savings imposed by the most draconian European programmes of adjustment are just cosmetics.
As long as the need for a profound paradigm change is not understood in Europe, progressives will keep attacking conservatives for imaginary misdeeds, conservatives will take the blame for policies they have never dreamt of, and common citizens will continue to suffer under the oppressive weight of a wasteful and bureaucratic social model.
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