Home Budget, Economy Will Austerity Create Prosperity?

Will Austerity Create Prosperity?


Listen! Hear the growing clamor about the “impossible” federal debt and demands to cut back on all government spending, slash services, even raise taxes (!) to bring our federal budget “under control,” just as hard-pressed families have to cut back when their incomes go down.

Is this not remarkable: The very lenders and banks whose excesses created the great global economic meltdown of 2008, who were rescued by massive government bailouts, are now demanding guarantees that those loans, which enabled the bailouts, be repaid with interest—— and by guarantee they mean “austerity” on the part of the very government which saved them.  The threat is explicit, that until austerity is imposed on the citizens of the country through higher taxes and reduction of government services, there will, quite simply, never be adequate new loans made to finance a broader recovery, the government will have to pay higher interest on what it has borrowed (in order to bail out the banks in the first place)…. Let’s get this cycle straight: now that the banksters have been saved they suddenly want their saviors to tighten their belts in order to pay the banksters back for lending the banksters money to save the banksters—- they demand an austerity and frugality they themselves did not display. This is the ultimate chutzpah, do as I say, not as I do.

So, in a nutshell: the bankers made billions off their own greed and folly, more money off being saved from their greed and folly, the taxpaying little guy gets hit twice, and ever more wealth is cycled from the middle class into the coffers of the top one percent of our society. Even worse, nothing has been done to tackle the systemic problems of our current global capitalist system. That system is today pretty much the same as it was when it caused the meltdown, and is doing the same things that caused the near collapse, so it will inevitably create another meltdown in the future, one that will again devastate the little guy and siphon even more of the world’s wealth into the hands of the upper upper-crust. Is something wrong with this picture?  

We have been trained to think of capitalism in the cozy terms of Adam Smith’s Wealth of Nations, which described a modest little 18th century free market where an enterprising person used accumulated savings to start producing products or services and, unrestrained by meddlesome government regulations, through the magic of a free market where every individual made decisions in their own self-interest, added greatly to the over-all wealth of their country. Very nice, but this “capitalism” bears little resemblance to today’s global economic system which is, confusingly, also referred to as “capitalism”—- although the Chamber of Commerce is now peddling a more user-friendly sounding designation, “free enterprise,” but that is no better at explaining what we have, either.

As a layperson I look at today’s economy and see:

* A global economic system that runs on credit

* When credit freezes for whatever reason, the system grinds to a halt

* The system is two tiered: the real economy produces real goods and services, and the financial economy produces nothing, but does shift money around (“financial innovation”), controlling the real economy

* Global corporations dominate the system and are beyond the reach of regulation by geographically limited nation states

* CEOs usually run corporations, not the original founders who were brave pioneers with vision

* Corporate CEOs make company decisions not for the good of their company or the public, but for selfish reasons because they are rewarded handsomely for short-term improvements in company stock prices, rather than for long-term development

* The “free market” idea, so beloved by corporate CEOs and their political minions does not and cannot exist in real life, and trying to create it brings out all the toxic flaws of the system

* “Creative destruction” is built-in, meaning irregular but inevitable boom-bust cycles, mis-allocation of precious resources, and harmful social consequences each and every time

* The entire setup is degenerating into oligopolies leading to what I call “corporate feudalism” as a successor method of organizing society, politically and economically

It seems to me that we have created a monster which is eating our planet alive. Our political class has no idea how to bring it under control beyond papering over the flaws, hoping to rev up the motor for one more, probably even more disastrous iteration of the cycle. The reasons for such timidity are

1) they do not really understand this global capitalism schtick in the first place,

2) they have no alternate framework or intellectual theory to replace the failed “free market” capitalism theory (they are as much in denial as the climate change deniers), and

3) the existing world elite that controls the financial tier of the economy is comfortable with the status quo ante, and they have no incentive to change the system

There is still more wealth that can be wrung out of the vast majority of the population, that is the  middle and lower classes who produce actual things, and transferred to the top fraction, the wealthiest, who produce nothing, but do move money around. That is the purpose of the current campaign to cut services and reduce the deficit in order to be sure the wealthy bondholders are paid interest due them on the national debt. Don’t fall for the propaganda which says these financiers and top echelon CEOs grease the wheels to make it all work, that is their “product,” and for such service they have fairly earned bizarrely grand compensation—- out of which they also are gracious enough to give huge amounts to charity, for which, mind you, we down below should be grateful.

Scott Baker, writing in OpEdNews

“The Least Productive people in the World”
says that this non-producing elite population lends their surplus money to the bottom or producing population, where it becomes “debt” for which the non-producers charge interest and rent, and “by shifting taxes off themselves onto workers, the wealthiest enjoy a rising share of gains.” In reality, these kings of the financial mountain have not earned such grandiose compensation, they have actually lost money for stockholders, cheated thousands out of millions like Bernie Madoff, and in fact, according to Baker, destroyed wealth rather than created it. What they did do was extract money from the pile for themselves, and thereby denied it to others who might have produced real goods and improvements for the community, rather than paper transfers benefitting only a few top dudes. We have enabled the creation of a “Speculator Class,” says Baker, that thrives on (and gambles with) “credit-wealth.” It is their money manipulations which caused the economy to implode and lose over 8 million jobs in the US, many of which will never return, creating long-term unemployment and shrunken production.

There is no lack of liquidity, read money, but we are now locked in a self-reinforcing circular situation: banks will not lend and companies will not borrow to expand production, create jobs, and hire workers because they say consumers are not buying—– and consumers cannot afford to buy until they have jobs. How, pray tell, will acceding to the demands of wealthy bondholders for installation of brutal austerity measures requiring slashing of government payrolls and reductions in government expenditures, help break that self-reinforcing circular situation? Why is “austerity” always defined so as to hit the little guys?

There are alternatives to the kind of austerity being proposed by the Big Money holders, says Rick Wolff in “Common Dreams.org” for 15 July. For example, how about:

1) “collecting income taxes from US-based multi-national corporations, especially those who use internal pricing mechanisms to escape US taxation,” or

2) do the same with wealthy individuals, or

3) levy, say, a one percent federal property tax on “holdings of stocks, bonds, and cash accounts in certain high dollar amounts (states and localities levy no such property taxes either), or

4) quitting the wars in Iraq and Iran—- really quitting, so you can cut the military budget, or

5) ending tax exemptions for “super-rich private educational institutions” like Harvard and Yale, or

6) do the same for religious institutions so that church-goers would have to pay the costs of their churches,

There are constituencies, of course, which would howl like a stuck pig if any of these alternatives were proposed… they would so enrage the conservatives they would have somehow to find words beyond the over-used screams of “Socialism,” “Communism,” and “Slavery.” Since global capitalism has repeatedly failed so spectacularly, causing so much harm to so many, especially among the most vulnerable, it has, says Wolff, “lost the right to continue unchallenged.” The mass austerity proposed by the actual perpetrators of the crisis lets the perpetrators off scott free, indeed, rewards them, and it should not be the only form of austerity proposed or imposed, not least because, so far as I can see, it would not work (create jobs by killing more jobs? Re-create consumerism by cutting consumers’ incomes?)—- it will draw out the agony, transfer yet more of the world’s wealth to a minute upper class, and lock in the oligarchies of corporate feudalism.

No, the wealthy elite have to share the pain of their disaster. And, we have to improve and/or replace the system itself.


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