Excerpt from Richard Wolff’s essay at http://www.theguardian.com/commentisfree/2013/nov/04/great-austerity-shell-game
Obama will likely impose more austerity: cutting Social Security and Medicare to compromise with Republicans. Similarly, European governments maintain their “austerity” programs. Even France’s government, officially “anti-austerity” and “socialist”, has a new budget with austerity cuts in social expenditures.
The accumulated evidence shows that austerity programs usually make economic downturns worse. Why, then, do they remain the preferred policy for most capitalist governments?
When capitalist economies crash, most capitalists request – and governments provide – credit market bailouts and economic stimuli. However, corporations and the rich oppose new taxes on them to pay for stimulus and bailout programs. They insist, instead, that governments should borrow the necessary funds. Since 2007, capitalist governments everywhere borrowed massively for those costly programs. They thus ran large budget deficits and their national debts soared.
Heavy borrowing was thus capitalists’ preferred first policy to deal with their system’s latest crisis. It served them well.
Borrowing paid for government rescues of banks, other financial companies, and selected other major corporations. Borrowing enabled stimulus expenditures that revived demand for goods and services. Borrowing enabled government outlays on unemployment compensation, food stamps, and other offsets to crisis-induced suffering.
In these ways, borrowing helped reduce the criticism, resentment, anger, and anti-system tendencies among those fired from jobs, evicted from homes, deprived of job security and benefits, etc. Government borrowing had these positive results for capitalists – while saving them from paying taxes to get those results.
Nor is that all. Corporations and the rich used the money they saved by keeping governments from taxing them to provide the huge loans governments therefore needed. Middle- and lower-income people could lend little if anything to their governments. Corporations and the rich, in effect, substituted loans to the government instead of paying more in taxes. For those loans, governments must pay interest and eventually repay them.
Government borrowing rewards corporations and the rich quite nicely. It amounts to a very sweet deal for capitalists.
Yet, that sweet deal raises a new problem. Where will governments find funds, first, to pay interest on all the borrowing, and second, to pay back the lenders? Corporations and the rich worry that they might still be taxed to provide those funds. They are determined to avoid such taxes – just as they avoided being taxed to pay for stimulus and bailout programs in the first place.
Austerity is thus capitalists’ preferred second policy, a second way to avoid higher taxes as governments struggle with economic crises. Corporations and the rich promote austerity by loudly insisting that today’s key economic problems are not unemployment, lost job security and benefits, home foreclosures, and record-breaking inequalities of income and wealth. Rather, the key problems are government deficits and rising national debt. They must be cut.
. . . . . . .
Capitalism’s way of dealing with its recurring crises is thus a remarkable two-step hustle. In step one, massive borrowing funds stimulus and bailout programs. In step two, austerity pays for the borrowing.
This hustle shifts most of the costs of capitalist crises onto the backs of middle- and lower-income people. The shift occurs through the higher unemployment, lower wages, and reduced government services achieved by austerity programs. It occurs as well in the sustained minimization of tax increases – especially on corporations and the rich.