When Did Austerity Become A 4 Letter Word?

Tyler Durden's picture

Via Peter Tchir of TF Market Advisors,


Suddenly, everywhere you look, “austerity” has become a 4 letter word.  Clearly it wasn’t excessive spending that caused too much debt.  Surely we didn’t hit a financial crisis in spite of excessive spending, nope, it is all the fault of austerity.

In the rush to avoid supporting anything that could be viewed as “austerity” we have lost sight of what austerity is, and how it can impact the economy.

Is pushing the retirement age from 55 to 57 “austerity”?  I don’t see how making decisions like this is bad.  It has very little impact on the economy today, yet is a crucial step to creating long term fiscal balance.

Is cutting retirement benefits, starting in 5 years “austerity”?  Once again, the near term impact is minimal, and while painful, is a necessary step towards long term sustainability.

Is firing government employees “austerity”?  While necessary in the long term, the immediate impact on the economy may not be worth it.  Maybe bloated governments need to be dealt with, but over time.

Are programs designed to enforce the tax code “austerity”?  Collecting these taxes will take money out of current spending, but the people holding this money by not following the tax laws don’t deserve to have it.  It is necessary to create a culture of fairness.  This is money that was supposed to be the government’s anyways.  You might not like what the government does with the money (do any of us?), but programs that enforce existing tax codes should not be cancelled.

Are unemployment benefits “austerity”?  This gets a lot trickier.  The short term impact would be to take money out of the economy, as people are likely spending this money as they get it. Yet, if the benefits are too good, are people choosing unemployment with benefits over work?

Are cuts to health care “austerity”?  A very touchy subject, yet the reality is this is an area that needs to be addressed.  There has to be a balance between ensuring people can have access to great healthcare and that the system is sustainable and the cost/benefits don’t get out of control.  In Greece, doctor’s were force to file things electronically or risk not getting paid.  Funny how quickly doctor’s were able to computerize their offices, bringing costs lower, in spite of what looked like an “austerity” program.

So, let’s not let politicians get away with claiming everything that is “austerity” is bad.  It isn’t.  Some forms of “austerity” have minimal near term impact yet are crucial for the long run.

Then let’s look at the long run.  Dr. Krugman had a piece today that highlighted the correlation between “austerity” and GDP growth.  It showed that more “austerity” (however it was defined) meant slower growth.  Doesn’t take a PhD to figure out that GDP is consumption based, and a cut in spending would reduce GDP.

What this chart, and so many other fails to do, is analyze what the impact is two years down the road.  Countries were all busy spending throughout the 2000’s and here we are with a debt crisis.  Too much debt is impeding the ability to grow.  If a farmer planted a seed and the next day gave up in disgust because there were no crops to harvest, we wouldn’t have any food.  Programs and policies take time.  It is obvious that spending provides a bigger short term boost than cutting spending.  It is far less obvious, that a year from now, the adjustments made to deal with the spending cuts won’t create a better future.

We too often confused “conjecture” with “fact”.  Lately I have seen a lot written about how much better the job situation is today than it would have been without all the policies of Obama, Geithner, and Bernanke.  It is treated as fact, yet it is merely conjecture.  I will admit in the quarter the policies were applied, it made the situation in that quarter better than it was.  We cannot know whether we are better off now than had we followed some alternative path.  Maybe waiting to apply the policies would have created a bigger effect – the “wait until you see the white’s of their eyes” theory.  Maybe allowing more banks to fail would have created a wave of new lending institutions that aren’t in competition with subsidized zombie banks.  We don’t know.  Economics is guess work.  There are competing reasons in economics because with some data, some math, some simplifications, and some logic, both sides of a coin can sound good.  The theories can’t be put to a proper test.  There are no 3 identical economies where you can leave one alone (the control) and apply the competing theories to the other 2 economies and see which theory is correct.

We need to take a longer term view to determine the best solution and we need to critically analyze what has been done and not just assume alternative paths would have led to a worse current situation.

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Mongo's picture

Is bailing out banks austerity?

economessed's picture

Is generational inequity austerity?

SilverTree's picture

Most people don't even know what Austerity means.


Austerity - to deny ones right to Obama money.



ShankyS's picture

Austerity will be a 4 letter word till November 7th. 

TonyCoitus's picture

Passing on the Mercedes-Benz SLS AMG and "settling" for the SL........now that's austerity!

Half_A_Billion_Hollow_Points's picture

very sorry to hear that. my thoughts and prayers go to you, your family, and your mistresses

Piranhanoia's picture

but not a few days afterward

DaveyJones's picture

"Austerity" has been a four letter word almost as long as "bank" has been one.

midtowng's picture

Austerity by itself is neither good nor bad. But in the cases of Spain and Ireland, which are already in Depressions and got their because of the banks (not because of excessive spending), austerity is just punishing innocent people.

Woodyg's picture

I'll be all in favor of Austerity when we apply it to the banksters, the Federal reserve, the lying thieving politicians, the privatized war machine and the insurance industry.....

no so much in favor of it when it's applied to my 85 year old mom living on 1250 a month while the banksters who crashed this sucker still get their multi-million dollar bonuses for ineptitude.

Burr's 2nd Shot's picture

Correlation equals causation, duh!  Doesn't take a Nobel prize to know that.

ironymonger's picture

It's a bit more insidious than that.

What he and Herr Professor Doktor Krug are glossing over is the implicit problem that if an economy become more dependent on government spending, it becomes more dependent on government spending!

Nid's picture

Is cranking up the presses and issuing a perpetual Put in order to subsudize a broken market Austerity?

ATM's picture

No. It is the end game.

Spastica Rex's picture

Austerity is for the poor. Suck it, the poor.

Dr. Engali's picture

I wonder who junked you....the 1% who doesn't like the biting sarcasm or some dumb ass who thinks you're serious.

Everybodys All American's picture

There is no common sense with the liberals on economics and never will be so stop trying to convince them that you're right. Besides they have all the PHD's and all I've got are WTF's.

Harbanger's picture

Progressives hghjacked the term "liberal" in America in the 60's. 

The Conservative Dutch freedom Party for example, is a Dutch "Liberal" Political Party.  Because they mean Classic  Liberals, not the modern (progressive) Liberals, which are anything but liberal. 

swmnguy's picture

The trouble is, many people see that much of the "austerity" checklist is also the playbook of those who would impose a form of corporate feudalism.  The "austerity" measures tend to gut the middle class.  The poor will remain poor, and the benefits accrue to the rich.  By the time any benefits might "trickle down" to the middle class, there won't be a middle class, because they'll all be poor.  Those who have benefitted the most from the current fiasco will benefit again, and those who are paying the price will pay the biggest price.  It's only "austerity" for those who have gone along and upheld their end of the social bargain.

Whether or not you agree with that assessment, that's how a growing number of people worldwide see it.  And that's why there's growing resistance.  Perhaps an "austerity" that didn't target the middle class, and affected all levels of society equally relative to their means would be less unpopular.

Nid's picture

Life expectancy for the Middle Class is pretty much the same as for everyone else...give or take.

swmnguy's picture

I didn't say that's how I see it.  I said that's how a growing number of people see it.  Hence the resistance.  My views on it are a lot more complicated.

Everybodys All American's picture

Social justice for all is what I'm reading and that is not capitalism and if it's not capitalism it's not going to be self sustaining. It's not complicated and has worked for well over 200 years here in the US. No need to believe the garbage coming from Krugman or any of his cronies who never have advocated to cut spending to within our means.

swmnguy's picture

I'd question whether what we've had for "well over 200 years here in the US" is truly capitalism, but that's beside the point here. 

I'm not advocating "Social justice for all."  Some are, though.  I'm saying that the growing number of those who oppose "austerity" see the "austerity" being proposed as nothing more than another government-sanctioned bailout of those who profited from getting us into this mess in the first place.  "I didn't take handouts, or get bailouts.  But I'm going to pay higher taxes and get lousy roads, schools and hospitals out of the deal.  I'm the one who won't be able to retire at 60, or 65, or 70; assuming I can find a job.  I'm the one who loses the value of my home, while my mortgage stays the same."  That sort of argument.

Again, whether or not you agree with it, that's the argument we're seeing.

Everybodys All American's picture

People who think a bailout is austerity are confused. Austerity means that people will suffer for a period of time and the majority of people are too weak to deal with the pain. However, if the spending is not placed under control the market as in Europe will bring austerity on whether the people here want it or not.

Woodyg's picture

once the corporate predators capture and control the guv Bankruptcy is ineviatable.....


even with Austerity -  those Austerity measures will just lead to more tax cuts for the top .001% or their fraudelent corporations.....


What Austerity will NEVER lead to as long as the oligarchs control the entire governing process is smaller deficits -  Austerity is simply a way to funnel money to the top......


for example - Ryans budget plan gives out more tax cuts to the top .001% than the program cuts add up to.... balancing the budget has NOTHING to do with Austerity....

ATM's picture

The status quo is what accrues to the rich.

swmnguy's picture

I would agree with you.  Of course, the rich being rich, that's always true.  If it weren't true, the rich wouldn't be rich. ;>)

Harbanger's picture

One way to avoid "austerity" is for European countries to drop the Euro and go back to their individual currencies.  America needs to drop the Fed reserve notes and go back to the US Notes and a gold standard.

WeekendAtBernankes's picture

Wish I could give you more than +1.  


No, sicko, I mean like +3.  Geeze.

Ben Burnyankme's picture

Are programs designed to enforce the tax code “austerity”?  Collecting these taxes will take money out of current spending, but the people holding this money by not following the tax laws don’t deserve to have it.  It is necessary to create a culture of fairness.  This is money that was supposed to be the government’s anyways.  You might not like what the government does with the money (do any of us?), but programs that enforce existing tax codes should not be cancelled.

Translation:  Fuck your private property rights.  It is all ours.

ultraticum's picture


As soon as I got to that section, I too had to wretch.

SheepDog-One's picture

Exactly. 'The people holding this money dont deserve to have it'....why, because someone signed a piece of paper saying they shouldnt keep their own money? Its theft, slavery by govt decree....doesnt make it right at all.

Ben Burnyankme's picture

Yes.  Profit is hard, plunder is easy.  Legal plunder my friend. 

q99x2's picture

Return the bankster's stolen money. 

Starve the beast.

Austerity the banksters.

Opensource the monetary system.

WeekendAtBernankes's picture

If you mean bitcoin you're totally phucked in the head there Lahey.

ebworthen's picture

Where was the "austerity" talk in 2008 when the banks and insurance companies were bailed out?

Why should I swallow austerity for the sake of bankers and politicians?

You are putting the cart before the horse.

Why should I bust my ass to have my money and property stolen?

What benefit is there for the individual in austerity when it does not exist for governments, the banksters, and the corporatocracy?

Nid's picture

Why should any non banker/non poli swallow yours or anyone else's' iToy bill and/or 40 year retirement?

ebworthen's picture


Moral Hazard.

Nid's picture

Kinda' sorta'....

At the heart is Liberal Policy....ie, bankers were only bailed out of a crater created by Liberal Policies in the first place ("lend more to those you know can't pay you back, or else...") shitty dealings and "shadow banking" were rational repsonses to circumstances created by irrational policies of vote whoring politicians. Not that the fuckers on Wall Street didn't enjoy the money they derived from the scam, but....just sayin'.

Harbanger's picture

If they weren't bailed out in 2008, we would have crashed, your house would be worth about 40k, but the fiat ponzi may have been over by now.  So now you'll just have to wait.

smb12321's picture

So instead we set ourselves up for a much worse crash with debt of 20 trillion rather than the 9.5 trillion we had at the time.  The MSM has maintained the BS than an orderly default means massive layoffs and the end of industries when when the reverse is true - as American Airlines demonstrates.   An orderly default of General Motors would have resulted in layoffs but would have set the company on a viable path.  Instead, it is an arm of the UAW implementing the bidding of "czars" and their pet agendas.

One reason the MSM campaigned against an orderly default was the negative affect it would have on union (and political) activity.

SheepDog-One's picture

Exactly, how is it my duty to bust my ass so some fractional reserve pirates can maintain their lifestyles?

This is all just justifying why slaves must be slaves, and the rich non producers must remain where they are.

AccreditedEYE's picture

Peter, how DARE you think you know better than the aristocracy and their army of Fed-employed PhD's! LOL Don't worry, even with all of their mathmatical alchemy, creative verbal conjuring and a global public that still can't figure out on their own that 1+1 can never equal 5, they CAN'T stop the global deleveraging process. They can continue to make it a more painful process but there ain't no stoppin' it.

Piranhanoia's picture

The answer is yes to some of your questions.  You may be forgetting that the people involved,  the ones being asked to suffer austerity due to the actions of their government giving their money away,  would have major issues with your rush to spread their future around like manure.

Austerity as it is currently being dished out is a shit sandwich for everyone but those it will directly benefit,  so,  fascist in nature.  No?