Selling austerity

Austerity is a difficult concept to sell. European bailout funds will be delivered to penurious states provided they agree to austerity measures.

Which marketing guy thought that up? How does it translate in Greece for example? Is the Greek word for austerity equally austere as the English word?

It might be possible to sell austerity in war time. It is simply impossible to sell it in peace time to increasingly large segments of populations in entitlement societies brought up to think that they can personally have more than they earn. Try selling hair-shirts to lotus-eaters.

What happens is that left–wing parties rebadge themselves as anti-austerity parties. It is proving to be a winner. In quick succession, in Greece, in France, and even in Germany’s most populous state (North Rhine-Westphalia), elections have failed to empower parties favouring austerity. The risk is that this view will prevail across Europe and maybe, at some point, in the United States.

Part of the answer might lie in replacing the concept of austerity with good housekeeping. We must live within our means seems to strike a common-sense chord without the self-denial connotations of austerity. But it is probably too late in history for this to work, even though it might be a little more sellable. People evidently like free stuff and don’t want free stuff taken away.

Why did the imperative of a nation living within its means become unfashionable and even unsellable? Welcome to the murky world of dodgy economics and its practitioners. John Stuart Mill in the 19th century exposed its flaws and indentified the culprits of his time of whom Malthus was the most famous. But it didn’t die. It remained comatose until the average intelligence of economists declined sufficiently for its resuscitation by Keynes in 1936.

Since then, the belief among economists that spending by governments is the key to economic salvation has flourished. When you think like this, austerity, reducing spending to match revenue, is quite simply anti-growth. Once this is accepted as economic wisdom there is no point at all in austerity. Austerity makes matters worse. It depresses growth, produces more unemployment, more social welfare spending, and less revenue.

Listen to Euclid Tsakalotos, professor of economics at the university of Athens and new MP in Greece representing SYRIZA party (radical left coalition), talking to Emma Alberici on Lateline. “We have these austerity policies that are leading to recession and they lead to greater austerity measures. That’s a dead end for Europe…and for Greece…”

You might say that’s a radical left-wing economist in Greece speaking. Okay, then take Paul Krugman, Nobel prize winning economist in the US. In 2010 he advocated another stimulus of the same size as the first ($800 billion) despite US federal government debt nudging above 100 per cent of GDP. Cut-backs in spending; austerity if you like, was the antithesis of his learned advice.

Bring it all close to home. Ken Henry when secretary of treasury advocated spending big and spending quickly in the immediate aftermath of the GFC. It is true that the Australian government was not in debt at the time but you don’t sense a caveat being in the frame. When interviewed on the ABC’s 7.30 this week he echoed Paul Krugman in explaining that the important thing was to “get the money out of the door” and that whether it was wasted or not was “a very second order or third order issue”.

It comes to this; spending by government, even wasteful spending, is good to get the economy going. In this white is black economic mindset, good housekeeping is a recipe for stagnation and decline. Debtor nations are encouraged to spend more. It’s a magic pudding world. Luxurious living is the answer to debt as, presumably, drinking more booze, sniffing more cocaine, and eating more meat pies is the answer to alcoholism, drug addiction, and obesity.

It is important in this age of experts on economics and on most everything else, including climate, to be skeptical and ask for proof and evidence; particularly when so-called experts come up with conclusions and policies which appear to defy common sense. In the case of economics, no proof or evidence can be produced showing that willy-nilly spending by government, never mind wasteful spending, has beneficial economic consequences.

Take most people away from the received wisdom of Paul Krugman et al and the yoke of the nanny state and, guided by common sense, they would likely point to the need for governments to live within their means while providing room and flexibility for the private sector to flourish and create prosperity. In fact, such a view is also based on good economics of the kind which existed prior to 1936 and which can still be found among a small group of conservative (i.e., above-average intelligence) economists.

Peter Smith’s book, Bad Economics, will be published very soon by Connor Court. You can pre-order (post free) here…