Thursday, June 17, 2010

Austerity Now, Poverty Sooner?

It might seem like a very logical way to rein in on one’s runaway sovereign debt, but will draconian austerity measures eventually result in widespread poverty?

By: Ringo Bones

From my perspective, it does seem appear to be the most logical step a sovereign country can take in order to rein in on runaway sovereign debt, but will it result in initiating an even deeper recession or perhaps a full-blown economic depression? Tenured economists even think that this could initiate that dreaded double-dip recession that the global economy is desperately trying to avoid in our still fragile post-credit crunch global economy. Sooner, rather than later, the EU will be facing the problem of how to make sound fiscal decisions with ever-dwindling tax revenue brought about by those draconian austerity measures.

Fortunately at present, EU style draconian austerity measures adopted by heavily indebted Euro zone member countries had not yet become in vogue in the United States. Every economist worth his or her salt perceives that austerity measures seems to run counter with what we’ve learned about Keynesian Economics that had bailed the global economy from the Great Depression of the 1930s.

There is this somewhat strange and not-so-old adage that goes: “Before any of us can cut out pieces of the pie, somebody has to make it.” Or that oh-so-true share-the-wealth paradox that goes: “We can’t share the wealth until we create the wealth.” I’ve first heard these “jingoism” during the transition phase of President George H.W. Bush to President Bill Clinton back in 1992 – unfortunately, it still holds true today. Euro zone policymakers should concentrate more on reforming their inefficient taxation system that allows the extremely rich to get away scot-free when it comes to paying their fair share of taxes.

Will EU austerity measures eventually compromise the wealth generating aspect of their economy – i.e. manufacturing – and instead turn the Euro zone into a wealth manipulation based economy of bankruptcy remediation where the ever shrinking wealth are yet again redistributed in vanishingly small quantities? When the wealth creation side of a typical sovereign nation suffers, this usually results in lower tax revenues – thus endangering a sovereign government’s ability to serve its citizens. Let’s just hope that EU style austerity measures never become a global phenomena or that Eurozone countries realize their folly before every country Europe starts saving their way into economic stagnation. Present austerity measures – like the recently approved quantitative easing measures – had mainly affected the Euro zone’s working class.

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