International Monetary Fund and “Fake” Austerity

Countries all over the world are reeling in debt that has been incurred by their governments. Developed nations like the United States, Japan and Europe are also facing the creditors’ heat. However, at the current moment, the country that is really in the hot seat is Greece. The stock markets have plunged in Greece; creditors are offering more debt only at usurious interest rates, and the country is imploding with a civil war taking place.

At the heart of the popular discontent with the government is an economic policy called “austerity”. The government of Greece in collusion with the Troika is trying to impose economic austerity on the nation. However, the general population is against the forceful imposition of such austerity.

However, is “austerity” the real culprit? Is the Greek government even trying to impose austerity? Or is it simply another policy being implemented under the name of austerity. In this article, we will have a closer look at this austerity policy being promoted by governments worldwide.

What is Real Austerity ?

The word “austerity” is often associated with monks. Austerity means to live a life with minimal inputs. For instance, a monk leads a simple life requiring minimal amounts of food, water, clothing and even leisure time. Most of their time is spent working on something productive. Their houses are barren with minimal furniture and possessions. In simple words “austerity” means minimizing the inputs.

Now, if we apply this definition of austerity to a government, what should an austere government be like? Well, one thing is for certain, the austere government has to minimize its input requirements. Therefore, the government must minimize its inputs in the form of tax revenues, in the form of labour hours from employees and in the form of expenditure being used to maintain social programs.

An austere government would only perform the basic government functions i.e. it would only have resources for self-defense and to keep law and order in the state. This is what real austerity at a government level would look like. This definition is by and large absent from the modern world.

Increasing Taxes in Austerity ?

The IMF with its vested interests is obscuring the real definition of austerity. In states like Greece, the government budget is increasing during periods of austerity. Hence, the government is not acting austere at all.

The total pool of money under the control of the government is going up significantly and so is the wasteful expenditure on many programs. The spending pattern of the Greek government is still largely driven by political motives. The biggest chunk of the massive budget is going towards paying off the usurious interest of the loans that the Troika has given to the Greek government. Also, the Greek government has still not stopped its social programs that are bleeding the exchequer dry.

The twisted definition of austerity has led to suffering for the average population as the government has resorted to massive layoffs. While doing so, the government has also raised taxes on the private sector.

Increased taxes are making goods expensive, reducing their demand and creating even more unemployment. Raising taxes is certainly not austerity, and it certainly is bad economics. After all, the government can only obtain taxes when private sector produces more. Raising taxes is like eating the chicken instead of eating the eggs, and that is what the Greek government has been doing in the name of austerity!

The Greek government’s policy, therefore, cannot be called austerity since its total budget is still increasing and so is its spending on welfare programs. The austerity measures are targeted at groups like government employees which are not capable of providing much political mileage.

The Unpopularity of Austerity

In the ideal world, the Greek government would employ real austerity measures. This would mean cutting down the government expenditure to a bare minimum. However, that would not go well with many groups that have vested interests and benefit from government spending. This includes the large cartels of construction companies that made a killing when the Greeks hosted the Olympics and also built a very expensive Metro rail which the residents of Athens have still not been able to afford. However, these companies have a significant amount of power as they finance the political parties when they run for office.

As a result, the Greek government has created a strange situation of “expansionary austerity”. The Greek definition of “austerity” does not mean living within your means. Rather, it means having an even larger budget but giving them money to a different set of people!

The Way Forward

The ignorance of spending limits has led many countries in the world including Greece to the debt spiral that they face today. Sooner or later, real austerity will be the only possible solution.

Hence governments should realize that elimination of unnecessary bureaucracy is the only way in which they can implement austerity. Any other form of austerities like eliminating the jobs of policemen, fireman or people that collect garbage is just plain extortion. These measures do not really save the money that needs to be saved and it punishes the wrong people while protecting the interest groups.

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