Saturday, December 08, 2012

The real effect of austerity

One of the raging arguments since the 2008 global recession has been between those supporting austerity and those supporting stimulus (Keynesians). Everyone knows I have always come down on the side of the need for stimulus, and have even gone as far as to say that we should be moving towards value added debt, as a greater risk is to shrink the economy and standard of living to the point where is difficult to retrieve.

Those in favour of austerity say, lets just deal with the pain now so that we can correct the future. In other words take some hunger now so that we can eat later. The only problem with that is that most of those who propose austerity measures are in a position where the effect will be that they will have less savings, not eat less.

I do realize the need for responsible fiscal spending, but that should be always. Not just in a recession but especially when there is growth. What the pro-austerity persons don’t realize is what is the real effect of austerity.

The real effect of austerity is the impoverishment it creates among those who are already poor. What it does is create a situation where we deepen and prolong the cycle of poverty for the most vulnerable, and even working poor, amongst us. What it does is play Russian Roulette with the lives of people, as there is no certainty that it will solve the problems, as in the case of Europe. What it does is ensure that a child grows up without hope, and wonder if they had done something in a past life to deserve the sort of suffering they have to grow up in.

What austerity does is create a uncaring attitudes and uncivilized behaviour that causes people to be callous to each other. What it does is create a lack of resources that causes the justice system to be unjust, the police not to have the resources to protect the people, that results in a general level of indiscipline and lack of law and order in the society because we can’t even afford to pay jurors to deliver justice, because they are hungry.

Austerity is another way of saying, if my family and I are ok then we can ask others to make the sacrifice.

I was motivated to put this on paper because of a very recent situation where someone I know very well was murdered leaving a family and friends to ask the question, why? and having to live with this reality for the rest of their lives.

I am not saying that this is directly linked to an argument around fiscal austerity but just saying so to highlight the fact that if we do not have enough funding to deal with the social waywardness, to make sure the police are effective, to ensure children have equal opportunity and proper nutrition growing up, to ensure that men can find adequate employment to raise their families and live their lives with dignity then we will have a problem.

We will have a problem like Greece, where they have applied fiscal austerity for over three years and still have an unemployment of over 25%, which is higher among youth. Where they have regular worker demonstrations because of the impact of austerity on the ability of people to eat. And still they don’t expect any significant improvement in their debt to GDP ratio until after 2020. So what happens until then to the vulnerable.

As the PM says, we have to balance people’s lives while we balance the books.

So the next time we speak of fiscal austerity, and not responsible fiscal spending, while not recognizing the need for stimulating the economy, as the US, China, and Brazil have, as opposed to Europe, and we have also realized the need as is evidenced by JEEP and such programme; think about what the real effect of austerity is, and then put yourself in that situation.


Anonymous said...

Mr. Chung I agree with you. I cant see how austerity will help a depressed economy. Austerity is not the answer to our problems. We can always try to correct the macro-economic variables (what they are trying to do with the IMF deal). This will only make us look good on paper and in theory. To tackle the economic and social problems Jamaica face, we must FIX THE BASICS. I am tired of telling people this. We not going to grow if we dont fix the basics. I say fix the basics, stop focusing on the results and more on the process. I am not saying our desired results are not important, no I would be silly to say such a thing. What I am saying is, quite simply, focus on the process of getting where we want to be or achieve.

As you rightfully said, austerity is not the answer. a better option is to pump resources into the economy and free up some capital so people can invest and get this economy on the road.


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