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Letter of the Day - Austerity cannot bring prosperity

Published:Sunday | June 3, 2012 | 12:00 AM


Almost 300 years ago, Bernard Mandeville, the Holland-born British philo-sopher and satirist, described - in verse - a prosperous society (of bees) that suddenly chose to make a virtue out of austerity, dropping all excess expenditure and extravagant consumption.

He pens the result this way:

The Price of Land and Houses


Mirac'lous Palaces, whose


Like those of Thebes, were

rais'd by Play

Are to be let' ...

The building Trade is quite


Artificers are not employ'd'....

For those who feel that 'The Fable of the Bees' is just a poem from a different age, allow me to mention a recent position from our new masters, the International Monetary Fund (IMF). The fund's Jaime Guajardo and two of his colleagues recently studied austerity plans of 17 countries over the past 30 years. Instead of looking at the pattern of public debt, they focused on governments' intent, reading budget speeches, etc.

Their analysis identified a clear tendency for austerity programmes to reduce consumption expenditure and weaken the economy.

I mention this because the utterances of the finance minister seem to suggest that he is going the austerity route. Our best performers in the economy, as well as the poor, seem to be punished with higher taxes, and we are told that these are hard times. I was under the impression that growth was the way out of our problems. I support that view.

austerity not way forward

Apart from our problems with corruption and waste, I have doubts whether austerity year in and year out is going to move us forward.

Maybe we are watching Europe with an uncritical eye and believing the mighty, mistaken Angela Merkel. But at the end of the most recent G8 Summit at Camp David, her austerity doctrine was seriously and successfully challenged and the final statement by the leaders was: "... Our imperative is to promote growth and jobs." They were also quite emphatic about "support for small businesses and public-private partnerships".

Investors are needed for growth. And a good way to start is by resisting the temptation to allow agents of the State to invade their corporate offices with guns. Instead of this present path, may I respectfully urge the minister to let the "animal spirits of entrepreneurship" loose in the land? (Those words are really Keynes'.) He may be pleasantly surprised at how much growth he sees and how little government spending is fuelling this growth.

There is an abundance of historical data to suggest that austerity in the face of an already depressed economy is a terrible idea. Cut the deficit too aggressively, and the negative impact on growth and the rise in the cost of debt service from higher spreads could result in a higher, not lower, debt-to-GDP ratio.

The minister must move the nation closer to optimum conditions for economic growth. Austerity cannot bring prosperity.


Stony Hill