What is #Austerity?

In simple economic terms, austerity is a reduction of the federal government's spending as part of a plan to pay back creditors. It also generally involves an increase in taxes.

Disclaimer: Politics – much like religion – is not based on scientific knowledge and/or facts, but rather mostly on vague promises that will surely be broken, superstition and conjecture (believe in me, not the ‘other guy’), popularity (vote for me, aka follow me), myths & folklore (conservatives cut spending & liberals cannot; or pray and some higher power will provide an answer to all your woes)… oh, and did I mention populism? 

I am not a fan of either of the above, because we are meant to be modern, intelligent human beings living in 2013.  Unfortunately we cannot divorce ourselves from politics because it affects every part of our daily lives.  Because of this little fact of life, I will only focus on the financial aspects of austerity, about which I have a little knowledge.

At the top of the article, I raised these two points about austerity: it means cutting government spending, and raising taxes.  These two factors are absolutely binary, consisting of two actions that are inextricably linked.

In your chemistry lessons at high school, you may remember learning that binary sometimes meant “consisting of, or using, two harmless components that combine to form an extremely toxic product”.  In an economic sense, austerity is 'the same'!

Fiscally conservative people DO want the government to cut wasteful spending (and oh my… most governments excel at wasteful spending), but DO NOT want to pay higher taxes.  Liberally minded people DO NOT want the government to cut (e.g. social) programs, but also DO NOT really want to pay higher taxes (I do realize that some people would actually like to pay more tax, but I'm not sure I understand why).  Of course, many people – conservative and liberal – are, and/or may be willing to pay higher taxes... but not if the government continues wasteful spending.

The Eurozone politicians are arguably world leaders in terms of government over-spending, as champions of low worker productivity, supporters of ridiculously early retirement eligibility options, and imposers of super-high taxes on the working class.  In Europe, especially, anti-austerity protests – chiefly taking the form of massive street protests by those affected by them and some of them also involving a greater or lesser degree of militancy – have happened regularly across various countries since the onset of the present-day worldwide financial crisis.

The European phenomena are, collectively, decidedly separate, conceptually, from the austerity measures themselves, even though the enactment of the latter is a prerequisite for the former.

This is because they are of the sizes they are; that they cut across age groups (e.g., both students and older workers) and other demographics; that they can incorporate many different types of actions in many different segments of a given country's economy including education and infrastructure funding, manufacturing, social welfare, and many others; and that the phenomenon of austerity, when explained by itself, is inadequate to properly encompass the phenomenon of widespread opposition to it, and that opposition's nuances and fluctuations.

With the world in financial turmoil, the poor wish to blame the “1%ers” for their woes, and the rich accuse the poor of some of the claims I had made above and below.

In the meantime, the poor get poorer, the ‘middle-class’ implodes, and the rich get richer!

In reality, poor people were already poor; they did not suddenly become poor.  Losing one’s employment doesn’t cause poverty, but rather a (hopefully temporary) loss of earnings.  To be clear, I’m not referring to being poor in the context of not being able to buy a new pair of jeans at GAP, or a new car… I’m talking about poverty, as in perhaps not knowing when one’s next meal will be available, or from whence it would come.

Poverty is exacerbated by a lack of meaningful (minimum) wages, and this is often unfortunately complemented by an unwillingness to work (especially when/where welfare is freely available ‘at the cost of others’). 

Then there’s the ongoing, contributing factor of globalization – which can be viewed as a global equalizer – resulting in a transfer of wealth to poor people in poor countries, e.g. China, causing poor people become more wealthy (in general, global, economic terms).   

Conversely, people in wealthy countries become ‘poorer’, much like e.g. General Motor’s unskilled, unionized employees who had become accustomed to earning middle-class wages in exchange for delivering menial labor.  Today, the largest corporation on the planet – Apple – hardly manufactures any of its products in countries with expensive labor (U.S., Eurozone, etc.), but Apple successfully sells its expensive products to (mostly) ‘rich people’ at very high prices, despite very low manufacturing costs, and the fact that they offer mass-produced merchandise.

What about the middle-class?  Well… what exactly is middle-class anyway?  Surely, it depends on one’s income earned on a regular basis, financial standing vs. peers, wages that allow one to save money for a rainy day (priority #1; and hopefully your government - like Cyprus' - won't steal your savings), the ability to provide shelter and sustenance, clothing and warmth, etc. 

In most western societies, the term ‘middle-class’ has unfortunately become synonymous with ‘entitlement’; the latter… one of the primary causes of government overspending.  Politicians are so eager to get elected – mostly for self-enrichment – that populist entitlements for the ‘middle-class’ (aka the voters) become the primary drivers for their election campaigns.

Then… once elected, they cannot cut spending, because they were elected almost entirely because they promised to sustain, or increase spending!  And then… realizing that they cannot raise taxes on the very same people who had elected them, they target e.g. the wealthy as a source for increased revenue.  But even if they taxed ‘the rich’ at 100% of earnings, it would only keep their spending habits satisfied for – at best – a few weeks.

I don’t have an austerity solution, and the purpose of this post was to share my thoughts, rather than an attempt to fix ‘the problem’.  The world is unjust, and our parents taught us that “life isn’t fair.”  But, there cannot be a substitute for earning money for doing honest labor, and people should be rewarded financially for their productivity, innovation, creativity and skills when it results in the betterment of people in general.  In particular, the highest performing people should earn the greatest rewards for their labor – on this concept, I cannot waiver!

As much as ordinary people have to live within their means, governments should learn to do the same.  If they cannot, “we, the people” should get rid of the legislators, because they’re making us poor.  To date, I have yet to uncover a poor politician, working for a low wage, and no benefits! 

Do you really think your local fat-cat politician deserves more of your hard-earned money?  You decide… and then, also determine which of his/her promises you can do without, while you hand over more of your cash!