Austerity: Why and for Whom?
by Rick Wolff
Rick Wolff is a Professor Emeritus at the University of Massachusetts in Amherst and also a Visiting Professor at the Graduate Program in International Affairs of the New School University in New York.
July 15, 2010
Clearly, the global capitalist crisis that started in 2007 will be neither short nor shallow. The government rescue of the US financial industry pumped enough extra money into the economy and sufficiently reduced interest rates to give banks and the stock market the heavily hyped "recovery" that started March 2009 and is now over. What is worse, their recovery never reached much of the rest of the economy. Efforts to broaden the recovery or extend it beyond one limp year have failed. That failure cost Washington trillions in borrowed funds from lenders who now demand guarantees that those loans will be repaid to them with interest. Similar demands now confront many other governments who likewise borrowed heavily to cope with the crisis in their countries.
The guarantee demanded by lenders is "austerity." Lenders want governments to raise taxes or cut government spending or both. Governments will then have more money available to pay interest on loans and to repay those loans. Governments that fail to impose austerity will face higher interest on new and renewed loans or will be denied loans which would cripple those governments' usual operations. Austerity is yet another extreme burden imposed on the global economy by the capitalist crisis (in addition to the millions suffering unemployment, reduced global trade, etc.).
Who are these lenders demanding austerity? The globally active financial enterprises -- mostly banks that collapsed in the crisis and were rescued by their home governments -- are, together, also major lenders to those governments. Banks own their own governments' debts but also other governments' debts. For example, major banks in France and Germany are among the Greek government's chief creditors. US banks and related financial enterprises hold significant amounts of other governments' debts and other nations' banks own much US government debt.
The international banks that were rescued (from their own bad loans and investments) by governments now worry that governments they lent to won't be able to repay those loans. Banks threaten to make further loans much more costly or even impossible unless those governments impose "austerity." Most political leaders recognize that the banks' threats, if carried out under their watch, would end their careers quickly and badly. All capitalists see in possible government defaults the specter of another credit freeze with terrifying ramifications for global capitalism. Still worse for those banks: governments in default would not likely be able to borrow again to rescue banks again.
Nearly all current political leaders of major capitalist countries responded positively to the banks' demand for austerity (as in Canada's recent G-20 meeting). This immediately raised a basic political conflict always simmering inside capitalism: who will pay increased taxes and who will suffer decreased government spending? Militants in Europe have already marched and struck against austerity as an unacceptable plan to make workers pay to fix capitalists' crises; more general strikes are set in many European nations with a Europe-wide general strike now scheduled for September 29. Meanwhile, capitalists work with politicians to define as "reasonable in crisis times" austerity programs mixing both tax increases (chiefly on workers) and spending cuts (chiefly on workers).
A capitalist system that generates so massive a crisis, spreads it globally, and then proposes mass austerity to "overcome" it has lost the right to continue unchallenged. Should we not be publicly debating whether America (and the world) might be better served by going beyond capitalism? Can we not learn from capitalism's repeated cycles (failures) and change to a new, non-capitalist system? Having learned hard lessons from the first socialist attempts during the last century in Russia, China, and beyond, can we not rise to the challenge to make a new attempt that avoids their failures and builds on their strengths? When better than now?
Please read the full article at:
http://www.commondreams.org/view/2010/07/15
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