Bad economics and bad arithmetic: austerity is not working
Richard Jolly Honorary Professor and Research Associate
29th May 2012
European leaders pushing austerity as the solution to the current economic crisis are guilty of bad economics, bad arithmetic and ignoring the lessons of history. That's not just my view but the considered opinion of a group of leading economists and social scientists expressed in a new booklet Be Outraged: There are alternatives.
It is obvious that the narrow range of austerity policies are bringing millions of people to their knees - in Britain, in other countries of Europe and in the world beyond. Our booklet sets out the case for alternatives - identifying what needs to be done and showing that some of these alternatives are already happening, especially in emerging countries.
The austerity approach to reducing deficits and debt is counterproductive; it is leading to a downward spiral of incomes and government revenues making it more difficult to reduce the debt and undermining growth prospects. UK borrowing is already estimated to be £150 billion higher than planned. Across Europe ordinary people are reeling from a crisis that was caused by the profligacy of the banks and weak regulation of financial capitalism. Even as recession grips and millions of people face an uncertain future, top incomes have soared in the UK and
Consider this, the globe's richest 1 per cent (61 million people) earn the same as the poorest 56 per cent (3.5 billion). More than 10 per cent of European adults are unemployed, up by 50 per cent since 2008. More than one in five adults under 25 are unemployed and in some countries this figure is over 40%. Now is the time for everyone, including economists, to stand up and argue for alternatives that address these growing inequalities.
We're calling for a new economic approach that includes government action to promote growth and transform the financial sector from "bad master to good servant". We support activists around the world who are clamoring for a tax on financial transactions (also known as a Tobin or Robin Hood Tax) to control speculation and act as a valuable source of revenue.
As Greece teeters on the brink of political and economic chaos, now is the time to shout for different economic policies to the failed austerity agenda. This week Europe's leaders are meeting to discuss ways to boost growth across the continent as Greece teeters and just weeks after Francois Hollande was elected President of France promising more pro-growth policies. Europe needs urgently to escape from a trap where the screws of austerity are tightened while reductions of debt proceed ever more slowly or even increase.
The challenge for Europe is not make up or break up - but WAKE UP - wake up to the needs of people and the opportunities for a change of course!
In our professional opinions there are alternatives - for Britain, Europe and all countries that currently imagine that government cutbacks are the only way out of debt. The fiscal stimulus agreed at the 2009 G20 in London restored recovery for a year, helping global growth reach 4 per cent in 2010. A new stimulus and renewed coordination is badly needed now.
Increased growth is important - but by itself is not enough. We also set out policies to increase in employment, to build caring economies on gender equality, to reduce inequalities to make possible a recovery for all, not just a few. Important for this are actions to make finance a servant and not a master of all. And international action is also vital, both to reform the international financial institutions and to strengthen the UN.
Download Be Outraged: There are alternatives
Be Outraged contributors: Richard Jolly, Giovanni Andrea Cornia, Diane Elson, Carlos Fortin, Stephany Griffith-Jones, Gerry Helleiner, Rolph van der Hoeven, Raphie Kaplinsky, Richard Morgan, Isabel Ortiz, Ruth Pearson, and Frances Stewart.