Austerity - It's Coming whether We Like It or Not

The result of the Greek parliamentary elections in May is a repudiation of the policies and politics of austerity.  The Coalition of the Radical Left (SYRIZA), which experienced Greece's greatest political gain, campaigned on an anti-austerity platform.  SYRZIA says it wants to substantially increase investment in infrastructure, education, and other social programs.  (Sound familiar?)  It also wants to renegotiate austerity measures with the European Union approved by previous Greek governments.  Any new Greek government intent on continuing the austerity policies of the EU will face massive opposition from a majority of the Greek population.

France's new president, François Hollande, said that the austerity-only policy of government budget cuts, championed by former French president Nicolas Sarkozy, must be combined with policies of growth fueled by government spending.  Hollande said that the austerity-only policy as the prescription for curbing a spiraling euro debt crisis is "not inevitable."  Hollande describes himself as a Keynesian on the economy and said he wants to pursue "growth" policies rather than austerity policies that helped topple political leaders in Ireland, Portugal, Greece, Spain, Italy, and Romania.

Politicians (of both parties), eager to expand their power, quickly saw and embraced the "advantages" of Keynesian economics, such as "prime the pump" spending.  Keynes' economic theory states that active government intervention in the marketplace and monetary policy is the best method of ensuring economic growth and stability.  Keynes argued that the government should increase spending, either by increasing the money supply or by actually buying things itself.

Followers of Keynes have an unrealistic view of how the economy works and how people make decisions.  Keynesian policy advocates focus on the short run, with no regard for the future implications of their current economic decisions.  It was Keynes who said, "In the long run we are all dead."

Keynes was not known for his research or empirical efforts.  Keynesianism is not an evidence-based model of how economies work; Keynes himself was famous for fitting actual data to his theories.  The Keynesians' disregard for evidence is reflected in their advocacy for more stimulus spending even in the face of the obvious failure of the what's already been spent.  Keynesians apparently think we are short-sighted and stupid.

It's safe to presume that Keynes was not in favor of austerity.

Former IMF Director Raghuram Rajan said, "The standard Keynesian narrative that 'Households and countries are not spending because they can't borrow the funds to do so, and the best way to revive growth, the argument goes, is to find ways to get the money flowing again.' is not working.  The growth that these countries engineered, with its dependence on borrowing, proved unsustainable."

ZeroHedge's Tyler Durden says:

The industrial countries have a choice.  They can act as if all is well except that their consumers are in a funk and so what John Maynard Keynes called "animal spirits" must be revived through stimulus measures.  Or they can treat the crisis as a wake-up call and move to fix all that has been papered over in the last few decades and thus put themselves in a better position to take advantage of coming opportunities. 

Politicians of both parties have been led into politics with the belief that government can and must solve all problems, growing bigger while doing so and making it possible for elected officials to become very powerful in the process.  Does the Environmental Protection Agency and its run-amok policies ring a bell?  Voters have been convinced that government creates wealth, that the private sector is a necessary evil, and that government must control this evil to protect the rest of us from their predatory exploitation.  (Sound familiar?) 

Personal responsibility, voters have been told, is passé.  The conditioning of the public was necessary in order to implement political theft, and that theft was/is used to bribe votes.  Politicians justified their actions by saying they want to make society "fair and to help the poor.  (Sound familiar?)

So what are politicians in Greece and France doing?  Recent elections in Europe demonstrated that it is impossible to enact a political solution to current economic problems.  Those who favor austerity or "growth" cannot compromise on spending cuts or spending increases, because any proposal is viewed as harmful to the other side.  Politicians proposing austerity lost big to those promising to continue or even increase spending.  And that is a major point.  In order to get/keep their jobs, politicians in Greece and France had to reject austerity, to ignore economic reality, since a majority of voters also rejected austerity.

What do Europe's economic experiences portend for the U.S.?  Obama will (hopefully) lose the 2012 election because of his incompetence and the state of the U.S. economy.  Republicans will control government for the next two years.  They will suffer the same fate as politicians who favor austerity in Europe if they try to enforce austerity, to cut spending here. 

Politicians, even Republicans, are self-interested people, and will prefer to stay in office rather than be removed.  So they, too, will choose to ignore economic reality.  Especially when Democrats and their lapdogs, the MSM, loudly depict every austerity measure, every spending cut, as hard-hearted.  Whatever enthusiasm exists when Republicans gain control will soon dissipate when polls show the unpopularity of austerity with voters.

But austerity will surely come.  Economic reality must set in.  Voters, given the choice between politicians who promise to reduce or eliminate benefits (such as Social Security) and politicians who promise to increase, or at least not reduce, benefits, will vote for increases.  Eventually there will be no money (taxes, borrowing, or printing) left with which to produce and distribute benefits.  Economic reality and unsustainability will do what politicians refuse to do.

Is our only hope what our Founding Fathers saw as a legislature doing what's best for the country rather than themselves, and then going home?  Does this mean that Tea Party-backed candidates, who don't listen to Democrats or the MSM, and who recognize economic reality, should be the only ones we support?

Dr. Beatty earned a Ph.D. in quantitative management and statistics from Florida State University.  He was a (very conservative) professor of quantitative management specializing in using statistics to assist/support decision-making.  He has been a consultant to many small businesses and is now retired.  Dr. Beatty is a veteran who served in the U.S. Army for 22 years.  He blogs at

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