In yesterday’s review of the first in a series of EPSU briefings on austerity, we talked about how (with the aide of several extended metaphors) austerity causes unemployment and depresses economic activity. Today, we take up the same thread with the second in the series: “Austerity and Alternatives – Briefing #2: The Confidence Myth.”
You may be asking yourself, ‘why then would anyone want to pursue this disastrous policies?’ Ah! It’s to restore the confidence of the markets you see! This worn-out refrain is trotted out time and time again by the ‘austerians’ to justify massive cuts in public spending and services. But is it true?
This short report shows, using very convincing economic data, how markets react more to the short-term conditions of the real economy, particularly demand, than they do to the long-term expectation of lower government debt. At the same time, consumption and investment, both by households and private-sector actors, are depressed by money being taken out the economy. The theory of the Ricardian equivalency, the idea that when a government tries to stimulate demand by increasing debt-financed government spending, demand remains unchanged, and that there is essentially no difference between improving government balance sheets by tax hikes or spending cuts, is shown to be untrue. The multipliers speak for themselves: the spending cuts are far more damaging to the wider economy.
Yet possibly the most interesting part of the document is the results of a Europea-wide survey conducted by Gallup that shows just how little confidence Europeans have in austerity policies. 51% of the 6000 people surveyed said that they did not think austerity policies were working, 36% said that ‘austerity will work but this takes time’, and a miniscule 5% said unconditionally that ‘yes, austerity works.’ So much for confidence.
Read the full report “Austerity and Alternatives – Briefing #2: The Confidence Myth”, and see how even the IMF is starting to have its doubts.
These publications provide great background for the Wednesday morning panel discussion "The Financial and Economic Crisis: what Type of Economic Policy?", with Elena Flores, Director Policy Strategy and Coordination of the Directorate General for Economic and Financial Affairs, European Commission, Sian Jones, from the European Anti Poverty Network, and Rossana Dettori, General Secretary FP-CGIL.