Austerity measures lead to greater discontent

PUBLISHED : Wednesday, 05 September, 2012, 12:00am
UPDATED : Wednesday, 05 September, 2012, 12:10am

I refer to the letter by Samantha Datwani ("Austerity plan only option for euro zone", August 23).

To conclude her recommendations for the euro zone, your correspondent said that austerity measures "steer economies from running corporatism to an approximation of well-functioning capitalism". Not being familiar with the term, I won't comment on "running corporatism".

Ms Datwani is suggesting that the "no pain, no gain" mantra is the cure for the euro-zone problems and we should give up on "sweetheart deals" (read social spending) to restore, presumably, a healthy form of capitalism.

The only problem is that austerity measures have been unable to repair the US and Greek economies.

Such policies mean deep cuts to fundamental budgets that sustain society and the economy, such as education, health care and social welfare. These deep cuts cause an increase in general poverty, due to unaffordable health care, lower education standards and the erosion of the middle class. As a consequence, unemployment and social discontent peak. As the demand for goods and services falls, bankruptcies of small and medium-sized enterprises increase, resulting in a long depression for the whole economy, as is the case in the United States now.

The Estonian recovery referred to by your correspondent owes less to belt tightening than to the initial low level of national debt. To that we can add a total population of barely 1.3 million, much smaller than Hong Kong's.

Refunding the big bank lenders is what "kills" economies that are already in tatters; and the overwhelming majority of Western economies are hugely indebted.

Applying the simplistic mantra of "no pain, no gain" to any much larger country in economic difficulty is a recipe for social collapse.

Furthermore, quoting German Chancellor Angela Merkel as a supporter of budget cutting for other countries is ironic, precisely because Germany has long been providing its own population with massive social benefits.

Ask the 40 million Americans living on food stamps what they think of "no pain, no gain" and when they can return to the decent food and homes they all used to have in the 1970s - thanks to decent workers' wages and benefits, when corporate tax revenue was flowing in and America was an economic superpower.

Corporate taxes today in the US are at an insane 40-year low. Cutting social safety nets means playing with fire it is not a cure-all remedy.

Christian Masset, Lantau