11.02.2018 Author: Seth Ferris

“Austerity” Big Buzz Word – But Who Really Benefits? Giant Ponzi Scheme!


Last week the US endured a stock market crash which wiped 1,000 points off the Dow Jones Index. Following that, the US government shut down for the second time in two months.

If this happened anywhere else, one of two things would happen. Either the US would declare these problems to be the consequence of having a bad regime, and use various methods to try and change it. Or it would offer the country a bailout via the World Bank, on condition that the country adopts austerity measures and learn to pay its way.

But the US doesn’t seem to think these methods should apply to itself. The White House is laughing off the stock market crash as “natural market volatility”. The government shutdown has been reduced to a contest about who will blink first, a game rich Americans can indulge in but no one else, on pain of invasion. This despite the fact that Trump promised to end US involvement in expensive foreign wars and use the money saved to regenerate traditional industries, and though he won a lot of votes from disaffected people by doing this, neither of these things has happened.

This alone should raise questions as to why austerity is the only option for everyone else, but not considered necessary in the US, the home of small state Reaganomics. Why doesn’t the US see the benefits of its own policies for its own economy? Is it because the US knows that such policies do not actually work for anyone, but the US is benefitting from the fact they do not work for everyone else?

Buy now, pay forever

After the Second World War, necessary as it was, countries were left poor. The only way they could rebuild their economies was through accepting loans from the USA, which had avoided involvement in the war until 1942, and not had to take the civilian protection measures European countries had, or had to deal with the consequences of bombs, invasion and the ravaging of infrastructure.

Even the UK, which was still considered a superpower then and had a large overseas empire, was forced to take such a loan as its sovereign debt was 200% of its GDP. The loan was granted in 1946 and took sixty years to pay off.

The Anglo-American Loan Agreement was publicised at the time. But it was soon forgotten about because the terms of the loan, as well as the exigency of circumstances, demanded “austerity measures”. People knew little, and cared less, about the finer points of the loan agreement. But they understood the wartime belt-tightening measures such as rationing, and as they had been on the winning side in that war those measures were considered justified, and could be worn as a sort of badge of pride in the make-do-and-mend atmosphere of the immediate postwar years.

What was the political consequence? During that time the UK relied diplomatically on its “special relationship” with the US. It was late in applying to join the emerging EEC, as the EU was then known, and even later in being accepted for membership, largely because of this. But is there anything else it could have done, to avoid digging itself an ever deeper financial hole?

Italy had been on the losing side in the war, and wanted to make a fresh start. It therefore accepted aid under the Marshall Plan. This was at a time when the Italian Communist Party was a serious force, and countries not so far away from Italy were electing governments which pulled them into the Soviet orbit. But with the aid came the usual round of austerity measures, which depressed the wages in public service and thus dented the potential customer liquidity which the Marshall Aid-sponsored industries needed to prosper.

After the Christian Democrats took over, and gained credit for attracting this aid, their poster at the first election they fought as a governing party featured a loaf of bread being cut in half. The message was clear – without us and the Marshall Aid, you won’t eat. Even though Italians had little faith in any politician, and even less after forty years of Christian Democrat rule, Italy did not fall to the Communists, who themselves became increasingly pro-Western and social democratic in outlook to survive. Even if Italy had wanted to go in another direction, it had its commitments to the US, and joining the EU was the way to meet those, not an end in itself.

Austerity policies cut public expenditure and reduce debt in the short term. But they also make it increasingly difficult to develop sustainable solutions to the underlying problems of the economy. Investment is not attracted to a country which no longer has a well functioning infrastructure, and where people are afraid to buy things. The end result of austerity is ongoing financial and political debt to the donor – which is exactly why the US is desperate to avoid applying the same remedy to what it insists are serious problems when they occur elsewhere.

Our crisis, our rules

People don’t like austerity, either in practice or in principle, but ultimately put up with it because it makes a lot of sense on the surface. We all have to live within our means, so if a country is having problems it is assumed that it is spending more than it can afford. The gargantuan budgets of sovereign nations are beyond most peoples’ experience, and it is thus much more difficult to analyse what might be going wrong with the economy, or what to do about it.

However austerity programmes have often caused controversy. Argentina has tried both externally-imposed austerity and crowd-pleasing stimulus policies, and found that austerity only makes things worse. Even in the UK, where austerity has been almost a religion for 30 years, the government’s measures have had exactly the opposite effect to the one intended, doing nothing to cut debt and increasing government borrowing to unprecedented levels.

Similarly, there has been much comment about Iceland’s success in recovering from the 2008 financial crash. It didthe opposite of what most countries did: bailing out the public instead of the banks, thereby increasing debt and reducing the means of ameliorating it.

According to the theory behind austerity, this approach wasn’t supposed to work. The fact that it did is the main reason why the Syriza government in Greece, elected on an anti-austerity platform, was forced to adopt even greater austerity or be thrown out of the EU without a lifebelt. It is also why we never hear much about the anti-austerity measures adopted in Portugal. Following riots at the wage cuts imposed as a result of its bailout, a new government increased wages and created new jobs. Many of these jobs are not very stable, and public debt has grown. But the country has the building blocks to move forward, which austerity policies had taken away.

During the Cold War much was said about the Soviet Union using troops to impose its will in many countries. The US also had bases and military agreements with countries of course. But there was a distinct attempt to create the idea that “force” equals military force, and that people are always the unwilling victims of such force.

In itself, this was true. But enforcing economic and political dependency by imposing austerity policies, which remove many of the means of getting out of debt, is likewise a use of force to impose your own will. The Soviets did that too, effectively bankrolling much of Eastern Europe and North Korea and certain African states. But Soviet economics were so bad this was necessary to cover the failures of these policies, which threatened these countries’ long-term dependency on the Soviets rather than creating it.

As Viktor Yanukovych found when he tried to accept help from both the EU and Russia, if you accept such help you have the swallow a whole package of policy and influence, and reject others. Imposing political control is the point of the exercise, and the more countries are indebted to you, the more you can exert that control.

Our wolves in wolves’ clothing

If the US agreed with the austerity it imposes on other countries, through other agencies, it would be happy to have a government shutdown to get public servants off the payroll. It would also accept without hesitation external stimulus for its financial sector, under external control. What the US wishes on everyone else to serve US interests has now happened to the US itself, and it can’t understand why its increasingly embarrassed public doesn’t like it.

The US is always telling us how well China is doing, despite it still being the sort of communist state the US has always sought to eradicate. It is quite happy for China to invest in infrastructure all over Europe, creating a situation where nothing can move if the Chinese don’t want it to. Is this to persuade China to mend its communist ways and become increasingly capitalist? Maybe, but the Chinese don’t care by now. They don’t need the US to show them what to do, as they have reestablished economic independence by doing things the way they want.

Logically the US would turn to China for a bailout if it wants to keep its industry and stock market capitalised and its government functioning. But the Chinese are not interested in beg and borrow arrangements. They can take control of infrastructure and capital without anyone owing them anything, and thus having a grudge against them. They can do what the US used to do through organisations like the Peace Corps – benefit people by giving them the things they want, not taking them away as the US usually does nowadays.

In many countries agriculture is dying because the West long concentrated on manufacturing, and then services, to its detriment. This coincided with a political power shift from landowners to manufacturers and now business service providers like financiers. Most countries can’t absorb entire rural communities into the few factories they have, so Chinese people are moving in and buying up agricultural land.

This process helps preserve ad regenerate rural communities. But it also means that the land no longer feeds the people of the country it is situated in, but those China wants to be fed. This situation is exacerbated by the Western drive for biofuel – many crops are now grown to make fuel, not food, making it even more difficult for countries to feed themselves.

We hear many debates nowadays about “energy security”, at the heart of which is the notion that Russians controlling the pipelines is bad and the Western powers controlling them is good. Yet when it comes to “food security” there are few Western objections to the Chinese providing this, even though it should be seen as a threat, under the same logic.

Austerity is not about reducing debt but choosing your partners. Each of these partners has different means of getting their own way. The US loads you with debt, the EU threatens you, China buys things through state companies and give you work. Is the US likely to admit that the Chinese model is preferable to most people, regardless of the consequences for a country’s independence?

Enough may become enough

Fortunately, there are signs that the austerity mantra is being seen as the con it is. The Brexit campaign was supposed to be about taking back control and giving it to the disaffected who are tired of the failures of the liberal elite, even though “austerity” cost them their jobs, and their communities their souls, to begin with.

It is however becoming increasingly obvious that no one will benefit financially from Brexit except billionaires who are seeking to avoid the EU tax avoidance directives which will come into force the day after the UK insists it is leaving the EU – a date the UK set unilaterally. The internal UK government projections, which it wilfully withheld for months, state that under any possible Brexit scenario the country will be worse off. The most optimistic of these projections is a GDP fall of 2%, equal to that of 1981, which produced tough times many remember. The worst is of a fall of over 8%, which would be worse than anything anyone there has ever experienced, or can imagine at this point.

Yet the UK government, led by the Conservative Party which is still wedded to the austerity approach of 1981, insists it has to pursue the option which will hit disaffected Brexit voters the hardest. Those same people are the first to ask, “What has austerity done for me?” and to be told that there is no alternative if the country wants to prosper. Now they are being told there is no alternative to policies which the government itself admits will make everyone worse off, except a few billionaires and investors who sit on the government benches. If you can’t accept the latter argument the former looks increasingly spurious, and it roots are being laid bare to a greater degree day by day.

There are many ways to balance books without creating ever greater indebtedness to a donor and ever-diminishing ability to service those debts. Few governments look at these however, as long as they can get a short-term fix, and a new friend. Unfortunately the country which tries to control the world in this way doesn’t even think about doing the same thing itself – because it knows why it itself is doing it, and if too many other people knew, a scam which keeps its own economy afloat would collapse as quickly as a Ponzi scheme.

Seth Ferris, investigative journalist and political scientist, expert on Middle Eastern affairs, exclusively for the online magazine “New Eastern Outlook”.