By most economic measures, austerity in the United States and Europe has been a disaster. Stateside, labor force participation is at its lowest level in four decades, while unemployment in the European Union recently hit a record high. Economic growth has stagnated, and cuts to discretionary spending and public services across two continents have fueled poverty, inequality, and political unrest.
Even deficit reduction—the ostensible goal of austerity—has suffered. Because austerity policies stifle economic growth, they make it harder for governments to collect the necessary revenue to stabilize spending. As a result, both Spain and the United Kingdom have failed to hit their deficit reduction targets.
Yet, the message from Washington, Frankfurt, and Whitehall remains the same: Stay the course.
President Obama reiterated his commitment to austerity in his 2013 State of the Union, and made good on that promise in his 2014 budget. U.K. Chancellor of the Exchequer George Osborne says austerity must continue through 2018, even though the United Kingdom is in danger of falling into a triple-dip recession. Meanwhile, the European Central Bank (ECB) is “doubling down on its insistence that fiscal austerity is the best way to achieve economic growth in the long term,” according to the Wall Street Journal. But why?
AUSTERITY FAILURES PILE UP
“I don’t think that [President Obama’s administration is] grappling with the magnitude of the problem, in terms of unemployment and in terms of the structural change in the economy,” said Thomson Reuters’ Chrystia Freeland on Thursday’s All in With Chris Hayes. But while myopia at the top may account for why governments would underestimate the costs of austerity, it fails to explain why they would pursue the policy so fervently.
Part of the reason might be pure pseudo-religious fervor in the virtue of austerity. British philosopher A.C. Grayling—ironically, a popularizer of secular humanism—hints at the link between economic austerity and old-fashioned Protestant virtue when he applauds shared sacrifice and writes, “The austerity years of the second world war and its aftermath were surprisingly good for people; calorie restriction meant flat tummies and robust health, at least for those not smoking the lethal cigarettes of the day.”
Of course, not everyone is sharing in the sacrifice and enjoying post-prosperity svelteness.
As Radhika Balakrishnan, executive director for Rutgers’ Center for Women’s Global Leadership, pointed out on Thursday’s All In, the financial sector is doing better than ever under austerity.
“What we’re seeing is the financialization of the economy,” she said. “The economy is run by finance capital. It is not manufacturing, not working class unionized jobs that actually give people money to be able to buy things, but it’s finance capital. And profit is at an all-time high.”
This suggests another, even greater, factor driving austerity: Finance capital is not only insulated from the consequences, but stands to reap massive rewards. In Europe, for example, the ECB is using austerity to pressure the Greek government into removing labor market controls and break the country’s labor unions. They also demanded that the country institute a six-day work week. Such “reforms” open the door for international companies to provide low-wage, precarious jobs to the Greek people and extract substantial profits from their labor.
In the United States, austerity has resulted in mass public sector firings, to the detriment of public sector unions. The public sector is, of course, the last real citadel for organized labor in the United States, and by launching a prolonged assault on that citadel, the American right has successfully chipped away at what remains of the country’s organized left wing. In the place of public services and public employment, state and local governments have been forced to turn to private investment. No more so has this process been more extreme than in Michigan, where non-elected Emergency Managers have launched an orgy of privatization, sometimes going so far as to put entire school districts in private hands.
From the perspective of the financial industry and major private investors, austerity has in fact been a rousing success. As a result, it is likely to continue in both Europe and the United States for some years to come.