June 22, 2011
Austerity Is Good
by Gary North
Have you noticed the media reports on the intolerable nature of austerity in Greece? Have you read anything that praises this austerity and calls for more? You're about to.
The austerity we read about is a code word for "government spending cutbacks." In a media world run by Keynesians, the thought of cutbacks in government spending is a nightmare scenario. Keynesians believe that government spending is the source of both stability and growth in an economy. Any suggestion that the government has been spending far too much money is regarded as heretical.
The idea of the economic benefit of imposing greater austerity on all governments rests on a presupposition that is antithetical to Keynesianism, namely, that private spending should be overwhelmingly dominant in an economy, with government combined spending – national, state, and local – preferably in single digits. (See the warning of Samuel to Israel in 1,100 B.C.: I Samuel 8:14, 17.) In an era in which this figure is always above 40%, and even higher in Western European countries, austerity on this scale is considered economically insane. Yet this lower level of taxation was universal prior to the First World War. The war justified a massive ratcheting up of taxation and debt, a ratchet that never reversed.
For Keynesians, austerity for governments is the equivalent of austerity for the people. The idea that the government should tax less, borrow less, and inflate less is anathema to Keynesians. Such austerity would supposedly cut the flow of wealth to the people. Without the state acting as the source of the funds to buy goods and services, we are told, an economy would fall into unemployment and despair.
A TEST CASE
The news from Greece is bad from the point of view of Keynesians and commercial bankers. The expected bailout from Northern Europe's politicians, on behalf of large European banks, did not appear over the weekend. All week, the media had reported on the softening of Germany's Merkel toward the idea of another bailout. She had resisted a year ago, but at the last minute, she capitulated. The 2010 bailout arrived. This time, without warning, her last-minute switch did not produce the expected result. The weekend meeting of finance ministers did not produce the expected extension of government-to-government loans to the Greek government.
Remainder of this essay: http://lewrockwell.com/north/north995.html
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