The trouble with austerity: Cutting is more about ideology than economics

Austerity fetishism is simply the latest expression of free market orthodoxy.

LOUISA GOULIAMAKI / AFP/GETTY IMAGES

People reach out reach out for a bag of vegetables during a free distribution by farmers in Athens earlier this month. The political limits to cutting are playing out dramatically in the streets of southern Europe, Alex Himelfarb says. (Feb. 6, 2013)

 by Alex Himelfarb

Governments here and elsewhere are increasingly preoccupied with cutting even as evidence piles up of its harmful consequences on people and the economy. Austerity is not even delivering the balanced budgets its advocates promise. Even the International Monetary Fund is now preaching balance rather than a single-minded focus on cuts. Yet austerity’s adherents hold fast, deny the evidence or double down. Why is that?

Of course, a few at the top benefit from austerity, at least in the short term and, though few, they exert considerable influence. And some pundits are so invested in this agenda that they would have to swallow themselves to alter course. But the imperviousness to evidence is about more than that.

What makes a theory “scientific” is that it’s falsifiable — if contrary evidence is found, the theory is modified or thrown out. But austerity fetishism is not economics; it is simply the latest expression of free market orthodoxy and, as ideology, impervious to evidence, never wrong. The belief that less government is the solution to pretty much any problem doesn’t lose a beat when the contrary evidence comes in. Just check out the responses of the free marketeers to the evidence.

First is denial. That was how our federal government reacted to the early signs of the 2008 meltdown. And now it constantly reminds us how well we are doing, grabbing any glimmer of good news and ignoring the rest, comparing us to those in deepest trouble rather than the few who are prospering by taking a different course.

Politically, this often works. None of us likes bad news and we often punish the politicians who bring it. Those who remind us of rising inequality, stagnant incomes, increased child poverty are painted as gloomy naysayers. Why, it is asked, do they hate Canada? But sooner or later the bad news is just too bad to ignore and denial no longer sells.

Here is where adherents will often double down. If austerity isn’t working, what we need is more austerity. We are never in a situation with no government or zero taxes so austerians can always make the case that they just haven’t cut enough. That seems to be the argument from Ontario Conservatives and Tories in the U.K. In Canada, austerity has been implemented in slow motion, in increments, so we are ripe for this argument: our federal government, denying that previous budgets were “truly” austere, is now hinting that its next budget will cut even deeper.

There are, of course, political limits to cutting. That’s playing out dramatically in the streets of southern Europe. But here, too, the consequences of cuts are increasingly visible, first for the most vulnerable: aboriginal communities struggling to meet basic needs, higher tuitions and student debt, refugees who cannot get needed medicine, more unemployed Canadians thrown onto inadequate welfare because they cannot access insurance. Some consequences will play out more slowly: weaker environmental regulations, cuts to education and science, neglect of crumbling infrastructure, eroding public services will all make our economy less competitive, less fair, less sustainable. The deeper the cuts, the more public services erode, the more inequality and poverty grow, the greater the risks of social disruption and the higher the political costs. Then what?

The final refuge is to argue that all the right things have been done and now it’s up to the market. These arguments are already on the business pages of our media: when the governor of the Bank of Canada urged business to put some of the cash they were sitting on back into the economy, the austerians reacted with force. Don’t worry about “dead money,” they said. Don’t worry about the failure of the corporate sector to turn its profits — and tax cuts — into job-creating investments. Sounding eerily like old Communists clinging to the notion of inevitable revolution, their argument was pure ideology — “it’s only a matter of time,” surely market forces, as the laws of economics require, will kick in. If there are inexorable laws of economics that yield jobs and growth from cuts to taxes and government, it seems somebody forgot to tell business.

So misguided ideas persist. Critics are painted as negative purveyors of doom, tax-and-spenders, or worse. Let’s be clear, no one is arguing for imprudence or waste. Budgets should be balanced over time and debt should come down in good times. But we need to understand how we got here and we ought to stop repeating what just doesn’t work.

What got us here was a combination of recession — temporarily higher spending and lost revenue — and more than a decade of unaffordable tax cuts. Before the recession and the latest tax cuts, we were running surpluses. Spending obviously wasn’t the big problem and our government debt-to-GDP is pretty reasonable and interest rates are low. Why then the obsession with cutting? And where are the alternatives?

Alex Himelfarb is the director of the Glendon School of International and Public Affairs and a former clerk of the Privy Council.