engleski

AUSTERITY: A POLICY OF SELF-INFLICTING HARM

Austerity is a set of economic policies undertaken during a recession to cut the public debt and the budget deficit by combining the decrease of public expenditure and/or by raising taxes. Its synthesis is the product of centuries-long fruition of (neo)classical and Austrian school economists sharing the basic economic ideas that supply creates demand, unemployment is always involuntary, and savings are necessary for economic growth. Likewise, they shared the political idea of small government, either because the government is incompetent or a dangerous institution that is always ready to take away citizens’ rights. This idea’s pinnacle is expansionary fiscal consolidation that presumes that austerity will influence rational consumers by signaling them that future taxes will be cut due to lower public spending, which will change consumer confidence because they know that they know that they indeed have more income than before. This has been codified in EU law through the founding treaties, secondary law, and other EU law forms. Implementing those policies has been disastrous – no country has been able to recover by fiscal consolidation due to the conditionsbeing different in times of economic downturn. Increasing savings that are oth- erwise valuable during a recession are ruinous because one person’s increased savings is another person’s decreased income. There are only two situations in which austerity measures are needed ; in case of an overheated economy - so inflation can be kept under control and when a country substitutes its own with a foreign currency or pegs its currency to a commodity or foreign currency - to avoid bankruptcy and/or defend such foreign exchange rate mechanism.

austerity, Modern Monetary Theory, public expenditure

nije evidentirano