The Cost and Reality Of Austerity

by Michael

“Family then may be called the first political societies” so writes Jean-Jacques Rousseau, “the ruler corresponds to the father… and the people to the children”. Characteristic of him he rejects this idea, writing that “the whole difference is that… the pleasuring of commanding takes the place of love”. Giving a more apt analogy, Rousseau remarks that “(rather) the human species is divided into herds of cattle… with its rulers keeping guard over them for the purpose of devouring them”.

With that in mind, “Common sense” ought not to vindicate any solution. Similarly when justifying political decisions, quite often has the case of austerity been likened to one’s personal finances. The issue of deficits and debt had run centerpiece in last summer’s political climate, being heralded as the horseman of a second recession. Though fears have largely subsided, global growth slowdown coupled with the 2012 elections has fueled another round of austerity talks. Former Federal Reserve chairman Alan Greenspan claims that “investors could revolt at a moment’s notice against high government deficit levels”. Prominent libertarian think-tank the Cato Institute states that privatization of existing government services coupled with budget reduction will spur economic growth.

Elections And Austerity

Discourse it seems is focused on a need to rein in stock-market fallout from heavy deficits and rising debt. President Obama calls for a 1.2 trillion dollar deficit reduction by the year 2017, and unlike Republican contenders, this is equally split among security and non-security spending. Given that security costs(this includes the Department of State, Veteran Affairs and Homeland Security) account for anywhere around 65% of the discretionary budget, this seems fair. An interesting tangent though, the defense budget in actuality will only be decreased by 1%, instead cuts are going towards projected increases of the defense budget by the year 2017. Though there are no designated number for specific programs, given the lackluster spending increases for social programs, the glaring fact is that it’s current budgets will be cut. Further, since Medicaid, Medicare and other social programs are only set to increase due to population increases, hence why they are called mandatory, quality and per-capita spending can only decrease.

Republican primary frontrunner, Mitt Romney, likewise also offers his own austerity plan. The first move is for 300 billion dollar reduction in one term, and capping it at that level. Additionally, military spending would increase as it would be maintained at 4% of the total GDP. Considering how the baseline Department of Defense(excludes the cost of current overseas operations) is at 553 billion, and the fact that 4% would number 624 billion, we see even greater year to year increases assuming GDP growth remains relatively standstill. The third and the most hardline position is Romney’s plan to extend the Bush-era tax cuts, which had favored the absolute top income brackets notably through considerable cuts to capital gains taxes. Since military spending is set to increase, according to the above link by the Center for Budget and Policy Priorities a 30% would see social programs cut by 688 billion, including Medicaid and Medicare by 300 billion and food and nutritional programs by 72 billion. These are highly regressive fiscal policies since it affects one the more they slide down the tax brackets. Among other proposals would be to wane Medicare off into a voucher program, providing direct payments to supplement a private health plan. Considering how health premiums have increased by 60% in the past ten years, far outpacing inflation, this would mean either Medicare beneficiaries pay more and lose out, or the government does.

Both plans offer two things, that the current defense budget be untouched and there is no indication of reducing funding for the Export-Import Bank, a bank which finances deals between international buyers and its own producers. It effectively serves to subsidize corporations, at estimates of half a trillion per year. Secondarily this plan will see drastic cuts to social spending, a quite regressive policy since its more financially straining as it moves down the tax brackets. Finally and unmentioned is the promises of corporate tax cuts, lowering rates from 35% to 27% and 25% for Obama and Romney, respectively. This is mostly useless anyways given how effective corporate tax rates are at a mere 12%.

The Corporate Welfare State Remains

What else can we see from this? The fact that corporations lose very little, if anything, from austerity. Consider the fact that oil corporations receive an estimated $10 billion in subsidies annually. Accordingly, any and all bills to reduce this fund has been consistently defeated. With estimates of the cost of defending pipelines in the Middle-East, this number runs to an estimated 52 billion. However, this does not come as a net negative, the petroleum industry was the U.S’ largest exporter last year with estimates at around $300 billion.

The defense industry likewise also shows collusion and collaboration with the government. Its quite well known about the little relationship they have with the Boeing Corporation, being that the Pentagon develops military technology and aircraft and proceeds to sell it to Boeing. In turn Boeing produces aircraft parts, as well as turn it into commercial use. Consumption as well as research and development, are all government-sponsored enterprises. These relationships, despite WTO violations This comes as little surprise given the frequent violations of WTO charters and treaties by powerful nation, infamously by China, and continually by the United States.

A bit of a tangent, but an interesting note about the WTO. Looking at the Uruguay Round of WTO-treaty talks, two notable clauses include demanding agricultural subsidies end in developing nations and trade barriers be removed. This has two notable impacts, one is quite obvious with the agricultural subsidies, resulting in less productive farms and less produces being grown. This was witnessed during one of many infamous “structural adjustment” programs implemented by the IMF, which had the grisly product of creating one of the worst famines in recent history in the nation of Malawi. The second product is that when nations open its agricultural markets it would mean food goes elsewhere and not to the country’s population, with this being the case of the US-imposed trade policies resulting in a Haitian famine while the nation’s farmers sell fruits, flowers and coca leaves to yuppie markets in America.

With this being one example, this system has a broader term called the military industrial complex. This is a quite established and prosperous industry, as costly defense contracts with extensive kickbacks are given to defense corporations annually (with last year’s contracts equally $270 billion, rising by $23 billion from the previous year. Its simply one of the most absurd and best concealed institutions in the world today. A military industry which lobbies millions into convincing senators to fight wars, justified by creating phony constant and impending dangers.

Despite President Obama declaring the war on terror to be winding down, nothing indicates he will go the path of Bush Sr. and Clinton at the end of the Cold War and reduce the current levels of war spending. Though in sobering contrast, his budget policy is the lesser of two evils given Mitt Romney’s above mentioned spending plan.

Given how outrageous military spending as well as government support for the petroleum industry had served as the nexus for rebuilding the post-war(and in our time, post-recession) world, it seems like an imperative to maintain it (or better yet, shift it elsewhere to less violent industries).

Privatizing Socialism

So what about Medicare, Medicaid and social policies? If anyone remembered Obamacare, the hot button issue of 2009, then surely one remembers the infamous republican reconciliation excuse by Obama. In that, despite controlling the House and Senate, Obama declines to offer a public option policy despite the vast majority, anywhere from 60%-75% of Americans favoring such a mandate claiming a need for reconciliation on the bill with Republicans.

What then did the butchered American healthcare reform bring about then? This “paradigm of socialism” demanded that the uninsured must by law be insured by a public or private premium or else face punishment, that “health insurance exchanges” would be set up and in which the government would subsidize employer and business paid insurance, alongside expansion of medicare to cover a greater number of people. If it isn’t obvious, this bill serves two purposes, one is that it bandages a leaking problem, that being the shoddy healthcare standards of the United States, it being the absolute worst among developed nations, and that it doesn’t touch but only supplements the ridiculousness of American healthcare costs. The US of course, spending the absolute most, about doubled of Australia (who provide better and more broader healthcare than Canada, among others), at nearly $7000 per year. Given the current trends in the cost of family premiums, being at around $13375 and rising from $6400 in 2000, this problem can only worsen.

Romney’s austerity budget calls for the removal of Obamacare, which would probably worsen healthcare given how it would worsen the situation of inaccessible healthcare, and as mentioned above, he plans to create a “insurance-voucher” that rather than fund a health insurance plan, instead only provides part of a payment towards a private plan. This of course means more direct payments from the government to health insurance companies. Among others are rolling back funding and provisions as well as providing tax breaks in order to pay for healthcare, meaning more money goes to private firms and less to the government. If anyone remembers(and thankfully, everyone does) Romney’s successful implementation of statewide public healthcare in Massachusetts, this is quite a radical turn from his more centrist positions.

This has been a time proven tactic to dismantle education, public transportation and other government-run services. Use the excuse of budget and financial problems to shave off socialized industries, and turn them over to corporations. It comes as no surprise that the Quebec education crisis and hiking up student tuition, comes despite projected 2017 budget surpluses being ten times the amount gained by increasing tuition. Already the US has seen one of the best public higher education systems, the University of California system dismantled in favor of one marked by outrageously high tuition and years of debt slavery alongside an increasing financial role for corporations and private backers, of which has the added benefit of suppressing academic freedom.

Does Austerity Work?

So then, we have established how one-sided austerity is, but does austerity actually work? Well, sure it does cut the budget, but will this actually balance the budget? Looking at the European situation, it probably doesn’t given how Ireland had slashed around 30% of its total budget and yet still sees record high unemployment rates at 14.5% and further cuts being made last December when all thought the previous two austerity packages were sufficient.

This plan is of course managed and funded (through further loans to the Emerald Island) by the IMO and the so-called troika of European central bankers. Perhaps Ireland promising billions in bailouts towards the Anglo-Irish bank and guaranteeing it is the reason given the diverged situation in Iceland. The nation of 100,000 to the north was hit much harder during the crash and though it nationalized its banks and assumed debt, it did not impose austerity cuts. One quite notable event for both the European debt crisis and for democracy was when the nation held a referendum deciding the mater and ultimately rejected the loan guarantees that would most likely invite continental and IMO bankers to restructure their fiscal policies. Though the country is still in a spending deficit, unemployment remains quite low, at 8%.

If anyone knows about Greece’s situation, despite condemnation from the United Nations on the four European Central Bank-IMO imposed austerity measures, the country did not see improvement in their economic situation, and instead sees unemployment rise to 22% and even faster rising poverty rates, at 21% of the population. The country in fact saw rising deficits as unemployment rates plummeted, prompting a fifth austerity measure.

Again, would balancing the budget actually balance the budget? Folk intuition about finances show it cannot, since too many people rely on government-supported jobs, and the government seems quite needed in keeping industries afloat and profitable.

What Then, Is Austerity?

Given how the primary justification for austerity in Greece and the other European countries has been to contain bad debt so it doesn’t spread to the rest of Europe, austerity is a means of shaking down people and paying for bad choices made by the government. Who does the money belong to? You can ask Deutsche Bank and Goldman Sachs among others. These are the very institutions which in the past have received considerable financial and political support from their governments, including around $20 billion towards Goldman Sachs during the financial crisis.

But while repayment could wait for many years, as it does in the U.S and as it did following the 40 year or so payoff of WW2 and reconstruction, the tough repayment measures in Greece according to bankers, simply cannot.

Meanwhile, austerity here is a convenient excuse to cut off social spending and thus social cohesion. Rather, it shifts these services towards for-profit firms, undermining the time-proven effectiveness of government social institutions for “market efficiency” and reducing big government. These policies of course have quite negative social impacts. Finally, as seen with the defense industry, oil industry and healthcare industry, austerity also means not touching the industries which keep the country afloat in a pool of blood and oil.

Characteristically despising inherited governments, princely aristocracies and particular wills above the general will, Rousseau seems as vindicated as ever when he declares the rulers as the herder and the people as mere cattle, waiting to be slaughtered for their own benefits. This comes in the form of sacrificing livelihoods for the sake of political and economic gainers.

One cannot help but feel both terrified and sobered at how enlightenment ideals seem to have not addressed the problems it had discovered in the feudalism and tyrannies of Europe. Though improvements are obvious, idealizing the present as the ultimate end all age of plurality, liberalism and democracy is simply living in a comfortable lie.