Publish Date: Nov, 2018

The Double Whammy of Unemployment and Austerity

The situation in Europe and the United States is indeed grim. On one hand, the governments in the Eurozone are pushing for austerity as a means to reduce the deficits that they have built up over the decades. On the other hand, unemployment is shooting up because of lack of growth.

The conundrum here is that austerity kills growth and lack of growth results in unemployment. What exacerbates the situation is that when governments cut down their spending on social services, the expenses of the citizens on health, sanitation, power, and other public and social services goes up.

With many people out of jobs, it is indeed a truly depressing situation for the majority of citizens.

The scene is so bad that in Spain and Italy apart from Greece, there are regular protests and demonstrations against the cutbacks and the move by the government to lay off workers.

This is the scenario in Europe that has drawn both experts and laypersons into a heated debate over whether the governments must resort to austerity or stimulate the economy through economic means.

The Situation in Europe

The other aspect about the double whammy of austerity and unemployment in the West and especially Europe is that the upper segments of the society are relatively well placed to take advantage of the situation.

The bailouts of the banks and the other institutions have ensured that the rich benefit at the expense of the other segments.

Indeed, in the US and in the Europe, what has happened over the last few decades and has accelerated over the last few years is that the rich have become richer and the poor have become poorer.

This is leading to anger and violence on the streets and regular protests and social unrest have become common in Europe. This is not to say that all countries in Europe are suffering as the Germans are doing relatively well because of some prudent decisions that they have taken over the years.

The worst hit is Southern Europe or the countries known as the periphery of the Eurozone that have enjoyed the benefits of joining the Eurozone through the common currency that has artificially inflated their living standards all these years. Though this is not the topic being discussed, we felt that it would be worthwhile to place the issue in context.

The Situation in the United States

In the United States, the same argument over whether austerity is the answer or growth is the answer is playing itself out but in a less extreme manner than in Europe.

The reason why the US is relatively better off to some extent is that as the US Dollar is the reserve currency, the government can engage in monetary easing or printing dollars that has so far resulted in the stock markets rising but has not benefited the average person.

Of course, when we say the situation is better off to some extent, it is because of the fact that some of the liquidity that has been released into the economy has found its way into the increase in the home prices and other asset classes which is a sign that the economy is recovering.

However, there are many experts who believe that this can be a sign that another bubble in the asset prices is building up. Whichever side one belongs to, it is undeniable that the austerity versus growth debate is bound to continue for the foreseeable future as lack of growth creates unemployment and lack of spending by the government worsens the plight of the ordinary citizens who are unemployed or unable to spend on basic services.

Concluding Remarks

Finally, the only way out for all economies in the world and especially the West is through sustainable growth that does not sacrifice future generations for the present consumption. This is the solution to the economic riddle that the world is facing where sacrifices have to be made now for the future prosperity.