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Austerity: Pain for the Sake of Pain

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Paul Krugman sums up the German economic policy of austerity that is causing immense misery throughout Europe:

Why do it, then? Partly it’s because Europe is still operating on the false theory that this is essentially a fiscal issue; partly it’s to assuage the Germans, who remain convinced that those lazy Southern Europeans are getting away with something. In effect, the policy is to inflict pain for the sake of inflicting pain.

Which brings us to the question: can this go on? When do the people of the afflicted economies say that they can bear no more?

And as Krugman notes, the protests erupting in Greece and Spain show that that time is coming very quickly.

It is easy for bureaucrats and bankers to speak about economic policy in terms of numbers and financial equations. They do not have to live under the brutality of their own policies, so are removed from the human impact of it. Austerity as a philosophy is applied to 'cleanse' markets of their sins, to restore balance to its function and work by itself. Outside help is not accepted because markets, in the eyes of the austerity advocates, are perfect. If there is disharmony, they must be allowed to heal by themselves, even if there is enormous pain because of it.

As Keynesian economics shows though, that pain is not necessary. Debt can be accrued in the short term while growth is secured making recovery far less damaging and lengthy. Government spending provides the groundwork for sustained growth and job security. Without it, there is just pain and more austerity. That is until people won't accept it any more and they demand their governments take action rather than leave them to the dictatorship of the market.

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