The real cost of austerity measures

  Well now we know. In a surprising reversal of usual political policy, the pre-Budget policies floated in the media and designed to scare the living crap out of people, were milder than what actually turned up in the Budget. As a result, fear has tipped over into anger and personally, I’ve never seen such a reaction to a Budget. When’s the last time you saw protestors burning copies of the Budget?  The only thing that isn’t a surprise is the savagery with which healthcare funding has been attacked. It’s just par for the course in these days of austerity measures after the Great Global Financial Crisis of 2008.

There is a certain brutal logic to cutting the health budget. With healthcare being one of the major items in the Budget, any trimming done in that department is more effective than trimming in other areas. A cynic might also say that it is easier to take a small amount of money from a lot of poor people than it is to take a large amount of money from a small group of rich people. But is taking a razor to the health budget really such a good idea? New data from Europe would suggest not.

When Greece got into trouble and was slashing government funding, healthcare took a major hit. When Spain moved into austerity mode, the very first policy they announced was the removal of all government subsidies on medication. A soft-hearted soul might think that that would lead to a lot more deaths. And they would be right.

A recent article in New Scientist magazine, (1^st March, 2014, p6) contained some very scary statistics about the real effects of the healthcare slashing in Greece. Between 2007 and 2011, suicides increased by 45 per cent, cases of depression doubled and because all needle-exchange and free condom programs for injecting drug users were cut, by 2012 new HIV cases were 32 times the 2009 levels. A hard-core economic rationalist in an unguarded moment might say, ‘Well who cares about druggies? As for the depression and suicides, suck it up princess! It’s a time of crisis, everyone has to do their bit, we all have to dig deep and tighten our belts etc etc.’ But there is one statistic that should make everyone pause and have a bit of a think. In those same years, infant mortality rose by 43 per cent. I’m pretty sure that not even Scrooge would say ‘suck it up princess’ to a new born child.

It’s time to ask, what the hell are our priorities? Is keeping big banks and the IMF happy a good enough reason to virtually sacrifice babies on the altar of ‘austerity’ and ‘economic responsibility’? How ‘responsible’ is it to cause that much death and suffering to your own people? I know social disruption is not one of the economic values that banks factor in to their equations, they only see debt and balance sheets, but maybe it’s time that they did.

One of the few immutable laws of economics and finance is that debt grows faster than income. A small example would be, how much interest do you pay on your credit card and much do you receive on your savings account? Bit of a gap there I think. Taken up to the macro level this means that any government, regardless of their ideology, given enough time will start seeing their debt burden grow. If you add an unexpected financial crisis, that debt will grow even quicker. When debt starts to really balloon and government debt overtakes national GDP, barring a miracle, there is simply no way for that debt to be ever paid back.

Banks and governments know this. However much banks insist that governments must pay off all their debts, they know it will never happen. That’s when deals start to be made behind closed doors. That’s when debt gets re-structured, re-negotiated, rolled over or re-financed. Bail outs are offered, temporary loans are given and private creditors are asked to take a ‘shave’ on what they are owed. You may be interested to know that last time I heard, the private creditors of the Greek government were asked to take a ‘shave’ of 74 per cent of what they were owed. Which is more an amputation really, than a ‘shave’.

The point is: deals will be made. Debts will be partially forgiven. The country will survive and eventually struggle back to some form of economic health. My question is: if we all know what the end game will be, if we all know where this is heading, if austerity measures are ultimately pointless and destructive, why are we spending so much time on them? If we know Act Three is waiting in the wings, couldn’t we fast forward through the pain and boredom of Act Two and stop inflicting so much misery on our own population? How much of a sacrifice do poor people have to make to maintain the purity of an economic theory? How many babies need to die to keep bankers happy?

If that last sentence strikes you as extreme and inflammatory, as opposed to diabolically accurate, it’s a measure of how distant economic theory is from real life. Maybe it’s time for economics to be wrangled into serving real people, instead of forcing people to adapt to dubious economic theories that promise nothing but pain.