Austerity and Degrowth

I have to start with Greece. For many vocal advocates of a more leftwing economic policy, most notably (and notoriously) Paul Krugman), the prolonged debt crisis in the Mediterranean country has its roots in austerity politics imposed by the ‘Troika’ of the ECB, IMF, and the Eurozone Group. Without another haircut, i.e. write-off of Greek debts, and a stimulus program, Greece will not manage to recover. And recovery, of course, means GDP growth. I could argue about the deeper meaning of austerity politics in the case of Greece (or Portugal, or Spain, or Ireland for that matter) – to actually build a coherent fiscal framework for the Eurozone with shared understandings of political economy, something that has not been there in the first place and what is desperately needed in a common currency area. I could argue about the unsustainability of Greek GDP growth between 2005 and 2010 that was first and foremost debt-fueled, thus making the contraction to 2005 levels a very harsh form of adjustment. I could argue about the hollowness of the left’s battlecry against ‘austerity’, a term so devoid of any actual meaning only matched by ‘neoliberal’ or ‘socialist’. I could also argue about the shortcomings of Paul Krugman and other economists who do not have any clue about the cultural formation of Greeks socio-economic-political system in the last 150 years – economists do not have any sense for history, that is the problem with the ‘physics of social science’. And I could argue that a planned Greek exit from the Euro would have benefitted both Greece and the Eurozone much more than the awkward deal that is now going to be implemented.

But I want to argue about the strange siding of degrowth thinkers and activists with Syriza, its stimulus-oriented economic agenda, and their overall rebuttal of ‘austerity’. Because suddenly growth-oriented policies appear to be OK if they are somehow against ‘austerity’ or ‘neoliberalism’. Can it get, intellectually, any more shallow than that?

I was arguing a while back that Syriza is a big disappointment to the degrowth community as it has not delivered a single degrowth policy in the last 6 months; instead it put up a growth-writ-large economic program that smacks in the face of Syriza’s more alternative minded followers. But it appears that Syriza and its anti-austerity posturing (and given the recent decisions of the Greek parliament to pass the Troika’s proposal it is not more than posturing) still holds some control of the imagination of folks within the degrowth movement. When has Keynesian stimulus become a part of the degrowth agenda, I wonder. I can understand that neoliberalism is painted as the bogeyman of both mindless growth and the dominance of financial markets with no concern for the good of society. However, the original idea of neoliberalism was that all government actions should be made accountable in an economic sense; to pull the rug out under any totalitarian ideologies from the left and the right. It is true that this caused the slow but steady infusion of economic logic in all other spheres of society: you have to give an economic substantiation to a political argument, to an educational argument, to a judicial argument and so forth. But to just cry ‘neoliberal’ and assume that you made a (anti-)statement is rather infantile. The same holds for austerity. Austerity was intended to apply economic reasoning (vulgo ‘neoliberalism’) to public expenditures and ask ‘what economic return is this expenditure creating?’ Austerity politics seeks to understand what expenditures are productive and create some form of economic value for a society and what don’t. The policy recommendations are then straightforward: have less of the unproductive expenditures and more of the productive. It is not just about cutting government spending, this is an undercomplex strawman. Sadly, intellectual honesty seems to have been completely abandoned in the debate about Greece, the Euro and austerity – also and maybe even more so from the degrowth community.

What can you make out of all this for the case of degrowth? The first conclusion you have to draw is that no stimulus-oriented policy can work within a degrowth framework – not if the ecological boundaries are drawing ever closer. The Keynesian insight on how spending is triggered can, however, give you hints how not to contract an economy: actively reducing income and reducing demand might not be such a feasible option politically. After all, who is happy when income and sales taxes go up and wages go down? Besides, the willingness to pay would most likely also decrease thus decreasing demand even more, causing a further contraction of GDP and and a collapse in prices altogether. Reminds us about the 1930s and deflation. That is the valuable argument against too much pressure on demand and it can be used in the discussion about Greece. But the second important conclusion is that some burdens on demand are quite helpful, especially an increase in resources prices that would make production of goods and services more expensive. This would provide an ecologically beneficial effect and make the economy more resource-efficient. So imposing ‘austerity’ here means cutting away resource-oriented subsidies and increase resource taxes (especially on fossil fuels). The third conclusion follows from that, because such a form of ‘ecological austerity’ decreases, at least in the short run, GDP levels even more while increasing price levels. In order to tackle prices, deregulating product markets could help ease inflation. Under a degrowth framework this ‘deregulation’ would have to be extended to non-market sectors like community farming, makerspaces and repair initiatives, as well as LETS. In an earlier blog article I wrote (with some technical language) that “lessening the slope of [the supply curve] becomes imperative.” Moreover, if productivity cannot (and should not) be increased anymore – i.e. if output per labor hours goes down e.g. by reducing work hours – then markets have to be made more flexible and red tape cut back extensively. Sounds like austerity? Yes, it does!

Some aspects of austerity might actually fit degrowth-oriented policy proposals – much more than Keynesian stimulus politics. Instead of joining the blame game of more traditional leftwingers, degrowth thinkers and activists should rise above and see were the cause for degrowth might be served best.