Creeping Austerity

Remember when the pejorative of choice for American conservatives was “creeping socialism”?  That was the label given to everything from fluoridating the water to Medicare.  Now liberals can have a turnabout with cries of “creeping austerity”, only this time it’s a worldwide trend arising at just the wrong time for hundreds of millions of struggling people everywhere.  The “German Disease” has spread rapidly from the EU to developing countries, with the BRIC countries (Brazil, Russia, India, China) as its current focus.  Smaller countries will follow.

The new growth projections by the IMF for this year show a worldwide drop in GDP growth to 2.9 percent from the 3.2 percent projected back in 2010.  Their 2015 projections show a drop for China from 4.0 percent to 3.5 percent and a drop for Brazil to 3.2 percent from 4.1 percent.  That’s a relative drop in growth for China of 12.5 percent and a relative drop for Brazil of 22 percent.  Worldwide, economies previously expected to double in size in 10 years are now only expected to achieve half that growth.  That represents a lifetime of continued misery for millions. 

The IMF blames “structural problems” like budget constraints and slackening of demand and is worrying about whether the changes are permanent barriers or only a cyclical phenomenon.  Apparently unmentioned are the slowing of investment from countries like Germany and the U.S. as they tighten their own belts.  Those investments are a major factor in driving the economies of developing nations, and their slowing generates the creeping austerity I mentioned. The IMF’s proposed remedies are to tackle the “structural problems”, presumably through a managed austerity as in Germany, and to follow the lead of the U.S. economy.  The American economy, fighting its way through intense pressures for austerity with its stimulus programs, has so far managed to remain the most robust of the large economies.

I call the austerity the German Disease, though it’s not particularly that for Germany itself.  Germany has made strides to a 21^st century economy with an educated workforce, high-tech manufacturing processes, modernized infrastructure, etc.  The “disease” is the idea they’ve demonstrated in the EU of believing the same path can be followed by economies nowhere near that advanced.  The Germans through their austerity have been reaping the benefits of productivity gains that the developing nations are years away from achieving, if ever.  Following the German path elsewhere leads only to high unemployment, reduced services from budgetary constraints, and a general increase in misery for the poor.  That lesson has already been demonstrated in places like Greece and Spain, and is now appearing in the developing nations.

Unfortunately, that creeping austerity is doing its best to consume the American economy also.  Long-term sequestering, severe cutting of entitlements, refusal to fund infrastructure and new manufacturing technology, failure to support educational innovations, etc., are all part of that austerity beloved by conservatives.  And in advance of actually achieving a modern 21^st century economy, they are premature.  Reaping in advance productivity gains by belt-tightening and layoffs leads only to high unemployment when the workforce is not trained for new skills needed and the new jobs have not been created yet.  Steps taken prematurely lead backward, not forward, and just make the journey harder.

The leadership of the U.S. is important.  Already both the G-20 and the IMF have expressed concerns about the global impact of the debt limit and government shutdown crises.  The lives of hundreds of millions of people will be changed by what we do here and now.  But thanks to that creeping austerity, we are foundering at the task.  We need to move past forlorn distractions like sequestering and shutdown to the real tasks of creating a modern economy.  It will not be an economy of wagon makers and corner grocery stores.  A wishful nostalgia and zealous struggle to recover the past will not create a successful future.  It is time to move on.