Austerity: Why and for Whom?

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Rick Wolff is a professor emeritus at the University of Massachusetts in Amherst and also a visiting professor at the Graduate Program in International Affairs of the New School University in New York. At Commondreams, he writes:

Clearly, the global capitalist crisis that started in 2007 will be neither short nor shallow. The government rescue of the US financial industry pumped enough extra money into the economy and sufficiently reduced interest rates to give banks and the stock market the heavily hyped "recovery" that started March 2009 and is now over. What is worse, their recovery never reached much of the rest of the economy. Efforts to broaden the recovery or extend it beyond one limp year have failed. That failure cost Washington trillions in borrowed funds from lenders who now demand guarantees that those loans will be repaid to them with interest. Similar demands now confront many other governments who likewise borrowed heavily to cope with the crisis in their countries.

The guarantee demanded by lenders is "austerity." Lenders want governments to raise taxes or cut government spending or both. Governments will then have more money available to pay interest on loans and to repay those loans. Governments that fail to impose austerity will face higher interest on new and renewed loans or will be denied loans which would cripple those governments' usual operations. Austerity is yet another extreme burden imposed on the global economy by the capitalist crisis (in addition to the millions suffering unemployment, reduced global trade, etc.).

Who are these lenders demanding austerity? The globally active financial enterprises -- mostly banks that collapsed in the crisis and were rescued by their home governments -- are, together, also major lenders to those governments. Banks own their own governments' debts but also other governments' debts. For example, major banks in France and Germany are among the Greek government's chief creditors. US banks and related financial enterprises hold significant amounts of other governments' debts and other nations' banks own much US government debt.

Let's consider some alternative "reasonable" kinds of austerity (i.e., austerity for others) and then question austerity itself. Serious efforts to collect income taxes from US-based multinational corporations, especially those who use internal pricing mechanisms to escape US taxation, would generate vast new federal revenues. The same applies to wealthy individuals. The US has no federal property tax on holdings of stocks, bonds, and cash accounts (states and localities levy no such property taxes either). If the federal government levied a 1 per cent tax on assets between $100,000 to 499,000, and 1.5 per cent on assets above $500,000, that would raise much new federal revenue (everyone's first $100,000 could be exempted just as the existing US income tax exempts the first few thousands of dollars of individual incomes). Exiting the Iraq and Afghanistan disasters would do likewise. Ending tax exemptions for super-rich private educational institutions (Harvard, Yale, etc.) and for religious institutions (church-goers would then need to pay the costs of their churches) would be among the many other such alternative "reasonable" austerity measures. Comparable alternatives apply -- and are being struggled over -- in other countries.

http://www.commondre...view/2010/07/15

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Interesting read. It will take me awhile to digest. Economics is not one of my strong points.