Economics

Austerity According to St. Augustine

Mar 30, 2012 Andrés Velasco

The key to the Europe's debt problems lies in St. Augustine’s plea: “Grant me chastity and continence, but not yet.” Up-front gradualism must be the name of the game – and adjustment must be wedded to a growth strategy.

SANTIAGO – The guardians of austerity in Europe are striking back. Their emerging narrative goes like this:

When some economists spoke of panic and confidence crises, they meant their own. Bailout funds and Eurobonds were an invitation to moral hazard. Throwing money at the problem turned out to be unnecessary. Europe’s problem was an old-fashioned one: too much spending. Now that technocrats have replaced populists in the eurozone’s Mediterranean members, sustained fiscal austerity will get us out of trouble.

Sounds good, right? If only it were true.

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Andrés Velasco

Writing for PS since 2001
134 Commentaries

Andrés Velasco, a former presidential candidate and finance minister of Chile, is Dean of the School of Public Policy at the London School of Economics and Political Science. He is the author of numerous books and papers on international economics and development, and has served on the faculty at Harvard, Columbia, and New York Universities.

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Cynthia Mei Balloch Apr 3, 2012

The commitment to upfront austerity comes from both European leaders and from citizens. As in America, in a time of economic crisis, where households are cutting back, to voters it seems irresponsible that government spending should rise. The nuanced distinction between short term stimulus and long term trajectory - or, gradualism - seems to have been lost.

Who could do more to inform leaders and citizens of the need for credible plans for long term growth and sustainability?
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Zsolt Hermann Apr 1, 2012

Unfortunately the article is a good example how we lost sight of normal reality.
As our profit oriented, expansive, constant growth economy is totally reliant on finances, since people are urged, tricked into buying goods they do not really need, for money they do not have, way beyond their necessities and resources, slowly the banking system and the provided credit has become the most important pillar of this type of lifestyle, and then with the development of investment banking, speculations, stock markets money, finance itself have become the object of desire, the most important measurement of our "health".
Not surprisingly today whenever there is a crisis the instinctive reaction is to support, and bail out the banks, fill them with money, as if it would guarantee the well being of the whole society.
What we see now in Europe or we saw in the US in 2008, is that in order to resuscitate, strengthen the banks, financial markets, everything and everybody else is sacrificed.
The public, the well being of the people does not count any more, and each time someone resents they are threatened to death by catastrophic scenarios in case the banking system collapsed.
Moreover it is becoming clearer and clearer that the main problem is that we have lost the engine, since the present false economic structure and lifestyle is unsustainable so it does not matter how much we inflate the financial institutions with virtual money, the only thing that could truly support the system, continuing growth, is not possible any more. Thus we treat bubbles with bubbles, pay with credit for credit and then pray for recovery but we have no idea where that would come from.
The public which could maintain the consumer system is weakened and abandoned, and the flood water washing away the different layers of society is rising steadily.
Unless we identify the true cause of the problem, the system failure we evolved into, and address the real cause by returning to a necessity and resource based economy, all the bubbles start bursting until all the superficial, cosmetic solutions will run dry and we are left with nothing to build on.
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