Austerity = Less Income = Lower Tax Revenues = Fewer Social Benefits = More Poverty

Protest in Greece Image by Getty Images@daylife
Austerity programmes have become all the rage - in Ireland, Greece, Portugal, Spain, the UK, and next in the US -  yet...they can only lead to more poverty.

The equation is ironclad:
austerity = less income = lower tax revenues = fewer social benefits = more poverty.

Why? Because austerity programmes mean cutting back on government expenses, including  slashing employment in the public sector. That means fewer people with jobs, less income, less consumption throughout the economy. Remember that the income multiplier works both ways: with a stimulus policy, it expands the additional funds. With an austerity programme, it expands the cutback. And that means less revenues from taxes. And if taxes are also raised to reign in government budget deficits, the effect is even worse.

With less revenues, fewer social benefits can be paid for, and the most vulnerable areas are health, education and research. Health, education and research! Yes, it means jeopardizing the future! So far, military expenditures, while also cut back, have managed to defend themselves better, but that's thanks to the military-industrial lobbies that, as everyone knows, are politically powerful in every developed country.

The question is, once you've depressed the level of national consumption and created more poverty, is that the kind of environment in which business can thrive?  Sure, sovereign debt bondholders are happy that politicians are at last "acting responsible" and tackling the problem of deficits. But since when are bondholders good businessmen and entrepreneurs?

Now, if austerity programmes were meant to re-direct the role of government away from useless expenditures and damaging clientelism, then it would be okay. It would help build a beneficial climate for business. Some have suggested "investing responsibly in social and ecological assets" as "the key design criterion. Creating robust vehicles to direct public and private savings toward long-term investment in low carbon technologies and infrastructures, in resource productivity, in social goods and public spaces, in land and water and ecosystem services -- here is the cornerstone for economic renewal." (see article below: "Frugal living is road to new prosperity").

If that's what austerity policies were all about, I would subscribe to them whole-heartedly. Unfortunately, that's not the case...Except for France, but we'll see how ably they will devise an austerity programme that does no damage to social benefits. I doubt that they'll manage it.

In the meantime, expect more and more people going on strike, descending in the streets and protesting the manifest unfairness of auterity policies...

Related articles

• Low income Londoners 'hit worst' (bbc.co.uk)
• Germany, France 'impressed' by Irish austerity plan (cnn.com)
• Spain, Portugal and Belgium set to follow Ireland as debt crisis threatens euro (dailymail.co.uk)
• Frugal living is road to new prosperity (cnn.com)