Austerity Vs Democracy

For the last four years a debate has been raging between political and economic leaders across the Western world and it is one that affects every person in every household. The financial crisis of 2008 was the cause of the biggest economic downturn since the Great Depression of the 1930s. The fall in economic output in the US and Europe outstripped almost anything in living memory and an inevitable and immediate consequence of this was a fall in revenue for governments who depend on people staying in work and paying taxes to balance the national books. Budget deficits started ballooning, particularly in countries that had a sizeable deficit to start with, and so the calls for austerity began. At exactly the same time, however, another equally loud and equally inevitable call was being heard in the opposite direction and that was the call for growth. With a collapsed private sector in the wake of the financial crash, many looked to government to stimulate some growth and kick start the economy in a Keynesian fashion. This is where the US and Europe parted ways. Or so it seemed. The US, under the Obama administration, opted for growth with a comprehensive stimulus package, and most of Europe opted for austerity, with a round of budget cuts across EU member states. On the face of it the results seem starkly contrasting. The EU is predicted to shrink this year and the US is predicted to grow. The UK, for example, where an unprecedented series of budget cuts was launched by the incoming Conservative led government of 2010, has now officially slipped backwards into a double dip recession. America, on the other hand, may well be heading towards growth that, by European standards at least, would be considered a gold rush right now.

And consequently, as Paul Krugman put it, the Europeans are revolting. Several governments – Greece, France and the Netherlands – all fell in just over the space of a week and that is in the wake of a prior round of leadership changes in Italy, Spain and Greece just a few months earlier. Austerity is facing a popular push back on a mass, continent-wide scale, the likes of which have never been seen before. Even the highly unpopular Iraq war didn’t claim so many political casualties. And yet, at the same time, not a single economist, politician, or mainstream voter, on either side of the Atlantic, denies the logic of balanced budgets. Everyone knows that the government will have to settle its books sooner or later. What is really being asked for is not an abandonment of austerity per se, it is the humanisation of it. The public are asking politicians to keep in mind the impact their policies have on families and people on an individual level. This is more than an economic experiment; there are human faces at the end of it. Cuts may, therefore, have to wait until the economy is growing again. A growth agenda is what people are going to need first, and then the austerity can follow – once the engine is running again. Where governments are able to demonstrate a non-dogmatic and emotionally intelligent connection with their voters, they remain popular despite difficult circumstances, and where difficult decisions – including cuts – will need to be made. This appears to be the case with Obama, whose approval rating is far higher than would normally be expected for a President during a time of such high unemployment. People want to see that their leaders get it, that they are able to share in some of their anguish too, instead of engaging in a pure accounting exercise without connection to the genuine, often tragic, human cost cuts often entail. It’s the difference between cutting reflexively and cutting regrettably.

So the real choice for governments today is not austerity vs. growth, but rather, dogmatic leadership vs. emotionally intelligent leadership. Are Prime Ministers and Presidents able to demonstrate, through their policies, a genuine connection with voters, rooted in compassion, or is the cure more important than the patient? This, I believe, is the question of our times, and the prism through which all political leaders will be viewed and elections decided.