Guess Who Benefits from Austerity?

By Donald McCarthy

Up until recently, Angela Merkel has thrown her weight around as chancellor of one of the few countries, Germany, that is weathering the global recession. She has continuously pushed for austerity practices and refused to consider any other options until her allies, such as then-French president Nicholas Sarkozy, were voted out of office and replaced with much more liberal candidates. Merkel is now forced to compromise. although she is still only willing to go so far. Why is she, and many other economic conservatives both in Europe and America, so fixated on austerity?

A quick glance at the United Kingdom shows that austerity practices do not work. After David Cameron and the rest of his conservative ilk cut funds across the board, the UK fell back into another recession. So there has to be more to this. Even the most thickskulled of world leaders should be able to tell that these austerity cuts are not working and that there is no sign they will in the future. So why cling to them? To answer this, we’re going to have to start putting some pieces together. Let’s take a look at how business leaders are viewing austerity cuts which will illuminate a large part of the problem.

Back in October 2011, the Wall Street Journal had a small article that mentioned that stocks of companies such as JP Morgan and Bank of America rose whenever European leaders like Merkel announced austerity cuts. In the US, there is a very similar situation. In 2010 the Simpson-Bowles plan to reduce the debt was an austerity movement, even if politicians at the time refused to admit it. Who was one of the orchestrators behind the plan? Why, none other than Morgan Stanley director Erskine Bowles.

Let’s take a step even further back and look at a man whose policies affect not just individual countries but a whole continent: Mario Draghi, the president of the European Central Bank. What’s his background? Former managing director of Goldman Sachs International.

Now, I already know that some will point out that business leaders are knowledgeable about the economy and therefore should absolutely be part of the process of choosing economic strategies. It might sound good in theory but there are a number of flaws to this idea. First, let’s take a quick look at what austerity, their go-to policy, does. Austerity initiates cuts in the government which lead to cuts in unemployment benefits and the laying off of government workers. These government workers now have less money to spend and therefore are hurting businesses that rely on the average citizen for a profit. To make matters worse, the limited unemployment benefits further constrict these now laid off workers from spending. It’s a disastrous spiral.

The austerity cuts also hit health services and elderly services. Thus, even those who are employed are now going to be more stringent when it comes to spending because they are worried about their own futures. So this leads to an even further pullback of the economy and it simply won’t grow any further. For a country to come out of a recession with these conditions is an incredibly difficult task. I don’t think it’s hyperbole to suggest that conditions like this threaten to double the length of an already timid recovery.

Isn’t it then odd that business leaders are pushing for austerity?

Not at all. Business leaders from JP Morgan, Goldman Sachs and similar companies will not only be fine with austerity cuts, they will in fact benefit from it greatly as there is one more effect of austerity: the lowering of taxes on big businesses and on the very wealthy. The lessening of regulation of big businesses comes along, too, and it is suddenly easier to have offshore accounts completely untaxed. We all know how much business leaders like their offshore accounts to be untaxed. These large companies can also now push their workers harder without paying them more because there are fewer jobs for the workers to switch over to.

The picture is almost complete. The only remaining question is why politicians listen to the leaders of these companies. The answers, and there are a few, are hardly inspiring. In the US, politicians get their campaign money from these businesses and have to please them if they want to be reelected. Citizens United has only made this easier. Then you have another class of politician, such as Mitt Romney or Mario Draghi, men who came out of the business world. Do you think they really cut their ties with corporations before going into politics? Not likely. With support from their old companies, these politicians are more than happy to put into effect measures that will benefit their friends and themselves, as they, too, tend to already be very wealthy. It is no secret that Mitt Romney’s tax plan results in a huge tax decrease for himself and for all his friends at Bain Capital.

Austerity is deadly to the middle class; of this there can be no doubt. Events all over Europe and right here in America have shown us that. However, it is an incredible boon to the wealthy and to the corporate world. When it is them whispering in the ears of leaders around the globe it is no longer a secret as to why austerity measures are pushed. Contrary to what people like Angela Merkel might say, it has nothing to do with her economic ideology. It’s all about looking out for your friends and benefactors at the cost of everyone else.

Donald McCarthy is a freelance writer. Email dmccarthy618@ yahoo.com.

From The Progressive Populist, November 1, 2012