Sometimes, it’s very difficult for me to understand the concept of austerity as defined by our world leaders.
In my opinion, austerity seems to be very similar to the concept of productivity, and that’s an issue that I’ve struggled with since my days as a college freshman.
My first year at George Washington University was highlighted by…..well; actually the second best highlight that year was having John Kenneth Galbraith as a guest lecturer. I’m sure the famous Keynesian thought I was a dunce because I just couldn’t grasp how laying off 20% of the workforce was beneficial to the economy.
Galbraith’s position was that by producing more with less, profitability soared.
My confusion came in understanding how the unemployed could remain viable consumers in the economy.
His response was those people who were out of work would find other jobs because jobs are always plentiful.
Galbraith also said that while the unemployed were waiting to be hired, the government transfer program would go into full operation.
I asked, “What if they were no jobs?” He said that was a silly thought.
I then proceeded to carry my thoughts even further and asked, “How could an unemployed person continue paying taxes, which was the lifeblood of the government?” This was my line of thinking:
No job = no taxes, no taxes = no government revenue, no government revenue = more government borrowing, and on, and on, and on.
As a Keynesian, Galbraith saw no problem with that scenario.
In fact, he always said I was an Austrian.
As a 17-year-old kid, I had no clue what he was talking about, and said “No, I’m from Upstate New York.”
Here we are over fifty-years later, and Europe is talking about austerity, but it’s really the same concept as productivity.
The governments are asked to raise taxes, cut employment, and reduce transfers such as pensions. The theory suggests the greater the austerity, the greater the growth.
Once again, just as the 17-year-old student that I once was, I’m very perplexed how anyone can believe that revenue can rise and growth be stimulated by cutting the workforce and taking away that which is being earned.
Cutting fat is austerity, but the plan currently being bandied around not only slices muscle, but severs arteries and chops bones as well.
When that happens, death follows.
That fact is as true today as it was fifty-years ago, whether you’re a Keynesian or an Austrian.
European austerity seems to fly in the face of common sense. However, it seems that common sense is something that most world leaders of today are sorely lacking.
Along with his 40-years of dedication in the financial services industry, Bill is the President and CEO of GPSforLife, has recently authored a highly successful book entitled 44th: A Presidential Conspiracy, publishes his dynamic monthly financial newsletter MacroProfit, and faithfully continues his third decade on the radio with It’s All About Money, which can be heard weekdays on Money Radio in Phoenix and in podcast form on his website (and on smartphone apps) published at billtatro.com weekdays at 5pm Eastern. Bill can be reached via email at email@example.com and on Twitter @tatroshow.