There is nothing natural about money. There is no link to some scarce essential form of money that sets a limit to its creation. It can be composed of base metal, paper or electronic data – none of which is in short supply. Similarly – despite what you may have heard about the need for austerity and a lack of certain cash-generating trees – there is no “natural” level of public expenditure. The size and reach of the public sector is a matter of political choice.
Which puts austerity, the culling of expenditure in the public economy, under some question. For some countries, such as Greece, the impact of austerity has been devastating. Austerity policies still persist despite numerous studies arguing that they were entirely misconceived, based on political choice rather than economic logic. But the economic case for austerity is equally mistaken: it is based on what can best be described as fairytale economics.
For some countries, such as Greece, the impact of austerity has been devastating.
So what were the justifications? Britain, for example, has lived under an austerity regime since 2010, when the incoming Tory-Liberal Democrat government reversed the Labour policy of raising the level of public expenditure in response to the 2007-8 financial crisis. The crisis had created a perfect storm: bank rescue required high levels of public spending while economic contraction reduced tax income. The case for austerity was that the higher level of public expenditure could not be afforded by the taxpayer. This was supported by “handbag economics”, which adopts the analogy of states as being like households, dependent on a (private sector) breadwinner.
- Mary Mellor is the Emeritus Professor at Northumbria University, Newcastle. This opinion piece first appeared in The Conversation.
