Fiscal Cliff 2013: Why American Austerity is Not the Answer To US Fiscal Woes
The conditions of countries under the rule of austerity are the results of austerity. Civilized nations have become theaters for social disintegration and human tragedy. Greeks are dying from treatable conditions and Spaniards have been reduced to savage conditions. As the human toll continues to mount, even in light of a growing body of evidence that austerity impedes recovery, U.S. companies and policymakers are preparing to implement austerity measures in 2013.
The European periphery is now experiencing what it is like to live under the iron vise of austerity and it is killing them, literally. The New York Times has reported that the Greek health care system is collapsing under the state’s fiscal crisis and from the gouging austerity policies imposed by the bailout deal agreed to in July 2011. The result has been a population that is now suffering tremendously. Additionally, a newly agreed upon round of austerity measures, resulting in $17.5 billion in spending cuts and tax hikes, is expected to exacerbate Greece’s mounting difficulties.
One of the most serious consequences of reduced spending has been the loss of access to health care by unemployed Greeks, a problem of no small measure, considering that Greece’s unemployment rate now stands at 25%. This has further compounded the country’s problems and has engendered a deadly relationship between unemployment and health. As the Greek fiscal crisis has deepened, the unemployment rate has grown and conversely, due to the conditions of the bailout, fewer Greeks are now able to access much needed health care. The situation has become so dire that physicians have taken to establishing underground clinics to care for a growing population in dire need. As one doctor within this underground network observes, “We are moving to the same situation that the United States has been in, where when you lose your job and you are uninsured, you aren’t covered.”
The evils of austerity have spread beyond the borders of Greece and into Spain, where another recent New York Times article has painted another bleak picture. Unemployment has reached record highs in a country that was once flourishing prior to the financial catastrophe in 2008. Youth unemployment now stands at a staggering 50%. The article cites a Catholic charity’s report that describes worsening conditions. The charity reports having provided meals to over a million Spaniards in 201, highlighting the fact that this is a number that continues to rise. Moreover, the poverty rate for Spanish households now stands at 22% and the numbers “are expected to continue to get worse in the coming months.” Spaniards, who had maintained steady jobs prior to the 2008 financial crisis, are now finding themselves in survivalist conditions, reduced to handouts and scavenging for food. In a shocking turn of events, the Times reports that towns and cities are struggling with the growing problem of people foraging for food in dumpsters.
Italian woes are also growing as austerity measures continue to multiply Italy’s problems. The pressures of a slowing world economy; disintegrating neighboring economies and a shaky relationship with capital markets have worsened conditions for Europe’s third largest economy. Italian unemployment has risen to 10.7%, “it’s highest level since monthly records began in 2004.” Making matters worse, the Bank of Italy is recommending the Italian government to take further measures in the spring. Thus, austerity continues despite a major finding in a recent IMF report, that the consequences of these policies on domestic economies have exacerbated a global slowdown and continue to threaten chances of a real recovery. Indeed, the IMF states “that the rush to austerity probably did more harm than good in helping these economies to recover.”
As these reports continue to paint an ugly portrait of austerity, U.S. policymakers are gearing up for the fast approaching “fiscal cliff.” This pending event consists of a set of automatic budget cuts, set to take effect in January 2013, that amount to $100 billion in discretionary spending cuts and $400 billion in tax hikes. Despite the unwillingness of either presidential campaign to address the “fiscal cliff,” American companies are warily watching events and preparing for potential shocks to their business and investments. As the Financial Times reports, “More than 150 publicly listed companies” have been active in preparing investors for the potential damage of the proposed cuts, which are equivalent to 4% of U.S. GDP. Additionally, the Congressional Budget Office has indicated, that if left unaddressed, these cuts will deepen the recession.
Even so, a group of CEOS from over 80 major corporations, including financial power brokers such as Goldman Sachs, have joined forces and called for Congress to scale back government spending. As Aetna CEO Mark Bertolini explained, the thinking behind the action is based on the notion that debt reduction “will restore business confidence in our economy and investment will follow.” The CEOs have embraced the ideas found in the Bowles-Simpson deficit reduction proposal that would reduce spending for government agencies and entitlement programs, while lowering tax rates.
With this in mind, the calls for cuts and reforms to the tax code, which amount to various forms of austerity, should be assessed in light of the experience of struggling European nations. Their current difficulties are the consequences of austerity and it should be expected that if austerity measures were to be implemented in the US, the results would be the same. Thus, despite the calls by legislators for deep cuts and the demands of CEOs for debt reduction, the reality of such actions remains unchanged: tremendous suffering and pain for the population.