In the first paragraph the author states that Keynesian economics states that austerity cannot work. I argue that asking Keynesian economics to work only in times of bust is impossible. Keynesian economics states that austerity should come in the time of the boom, and not the bust, and so now arguments against austerity come from Keynesian economists. However, during the boom time the Greek government never created a surplus in order to finance more aggressive expenditures later. Most countries do not do this, and rely instead on the bond market to support them in times of bust. Greece borrowed so much from the bond market that they created a massive debt from which they cannot emerge even with sustained growth of 4 percent over the next 12 years. This is the crucial argument of Keynesian economics: government spending creates aggregate demand which creates growth and drives the economy from recession. Greece has cratered so hard that they cannot even escape their situation through aggressive growth and so spending is not even a possible answer anymore. They did not wisely spend on infrastructure investments which Keynes also argued for, and instead spent on massive public sector pensions and other non-value adding investments in order to spur aggregate demand. This is a massive failure to properly apply Keynesian economics, and it is too late for Keynesian economics to save them now. In order to argue against the austerity in general, the author cites the Irish austerity. The Irish economy was overheated by large amounts especially in the real estate sector which the author discusses. Home prices nationwide in Ireland literally doubled on average from 2000-2007. Property values were hyper inflated and created a bubble that was unsustainable. Many economists argue against the over application and reliance on Keynes for this exact problem: it has the tendency to create bubbles where government spending is influential; particularly in areas of large amounts of monetary borrowing like the housing market. If you make housing loans cheaper, people will buy more of them (by buying homes instead of renting), but supply will lag and prices will rise. These prices are unsustainable since no value has actually been created and will crash. This happened when austerity measures were put into place and the housing market collapsed globally. The idea that home prices did not drop back to real 2000 levels before the bubble is proof that the austerity was not as intense as it could have been. As well the author cites Irish emigration as proof of the hardships of austerity. And I must say that austerity is not easy, but it is a return to reality. Jobs that couldn't exist in economic balance are created in a bubble, and people lose those jobs in the market correction. People will lose homes and property and all sorts of other things. This is the danger of creating a large bubble. That money never 'really' existed anyway, though it feels very real. Dot-coms that you've never heard of now bought Super Bowl ads without ever selling a product. When the market corrected and all that money just evaporated no one should have been surprised, though I'm sure they were. But as for Irish emigration, the author states that 34,500 people left Ireland in 2009-2010. That is less than .008 percent of the population, and less than the amount of births in the same amount of time. Between now and September, Ireland's unemployment rate is projected to drop by nearly another full percentage. They are on the right track and in a healthier economic state. Austerity does not exclusively target the poor. Austerity targets everybody, and everyone loses their imagined bubble of wealth in the ensuing corrections. The poor are hard hit in the ensuing times because they are already living without margin for error in the first place. The fault in these decisions is that they are not made at the individual level, but made for the greater good, but they are not made maliciously by a cabal of rich nasty bankers who hate the poor and love their money. Depressions and recessions kill far more people than austerity, and sometimes the best choice is not the most pleasant.
Hi, I tried to answer you immediately but I couldn't because of some connectivity issues. Yes, I do understand Keynesian economics which suggests at the time of boom. However, with Greece, those days are past. However, the key point of the article is that when the countries bailed their banks out, the board and shareholders of those banks saw an increase in the net worth. Even in the cases, where the CEOs have asked to leave, they left with a hefty settlement that is almost unrealizable to most in the middle and lower income level. However, having to come of its own debt, when the Govts., imposed austerity it is poor and middle income families who lost their jobs. Yes, some were stupid enough to buy into the bubble. But the close nexus between the real-estate barons and the politicians, as well as the opportunistic (unregulated) acts of financial industry is the main reason for those bubble. If austerity is expected to flush inefficient industries out, should it be the banks who should have ceased to exist in the first place? I could even accept austerity, to some extent, had those banks become a national property. Instead of that, cutting the jobs of the poor and middle class, to keep afloat an asset of the rich is nothing but day-light plunder...! Hence, i tend to side with the article...! I would also like to request you to kindly point out some articles or data sources, where the austerity has actually affected the rich, if possible...! (I mean made them lose a few millions for example..!)