Greece or the U.K. – How Will the U.S. Respond to Austerity?

In the wake of WWI, the world was thrown into a global depression.  This was far worse than any recession that has followed. The dominant powers of the day, US, Germany, England, Spain, Italy, Russia, who controlled the global market, were experiencing massive debt, unemployment, and governmental instability.  Each nation responded in a similar way – big activist governments typified by nationalism and socialism – that centered around the centralization of government power for the good of the people.

Centralization was the answer du jour for stronger, more fiscally responsible nations. Unsurprisingly this experiment with big government proceeded to fail, actually slowing the healing process and leaving behind bankrupt nations strapped with debt.

Somehow, the United States must be suffering a bout of amnesia, as we responding to our current economic crisis in much the same way as before. Whereas we are mired in the policies of the past, much of the rest of the world has been falling away from centralized government in an attempt to stabilize their limping economies.

The transition hasn’t always been a smooth one. Take Greece. The idyllic Mediterranean nation was one of the nations most harshly affected by their irresponsible spending. Their deficit was 12.7 percent of GDP while the standards of the European Union encourage nothing higher than 2 percent. This caused their national debt to skyrocket to 120 percent of GDP – the result of a bloated public sector and unsustainable pensions. Their nation is now in survival mode, doing everything they can to avoid defaulting on their debt.

Austerity has been their answer. In order to cleanse themselves of their past, they have instituted public sector salary cuts, issued hiring and pension freezes, raised the retirement age, and yes, instituted tax-hikes.

The Greeks haven’t taken it so well. The extreme cutbacks have resulted in riots. Tens of thousands of striking workers have clashed with police in an attempt to convince the government to ease its restrictions. In the most serious of the riots an estimated 50,000 government workers, masked youths, and civil servants forced police to respond with tear gas and stun grenades. The people, spoiled by years of government subsidies, were simply unwilling to give up their luxuries, regardless of whether the government could actually pay for them.

Regardless of the violence the harsh austerity package is something that had to be done. Government spending was a drug that the Greek had become addicted to. But weaning them of this dependence is necessary for their long term benefit. Sadly, the drugs are always more fun that the withdrawal in the short term. Nevertheless, by putting power in the hands of the private sector as soon as possible, the toxins will eventually be pushed completely out of the body.

As the state removes itself from the marketplace in areas such as:  health care, transportation, and energy, these services will have to find homes in the private sector. Prices will eventually return to their actual worth as private companies will be forced to abide by the free market rules of competition. As more efficient businesses take hold, goods and services will become more affordable and the Greek will turn towards long term health. It will not be fun times in the sun for this generation, but it is a necessary hangover from a long bout of partying.

Many other Western powers have moved away form their centralized government systems.  Portugal, Italy and Spain have been taking steps to make their balance sheets more sustainable. Across the Eurozone, welfare spending is going down, bureaucracies are being slashed, and retirement ages are going up. For instance France, who has done comparatively well during this recession, has decided to raise their retirement age from 60 to 62.  In response, millions of people protested this reform, going so far as to set up fake cardboard coffins marked with things like: “Here lies Roger. He’s 60, and he died before getting his retirement.”

Change is happening. These Keynesian style governments are realizing that everything comes at a price; those prices add up. Many Europeans have take it personally, angry that budget cuts are cutting into their benefits.

But the English are not “many Europeans.” Rather than throw a tantrum at the idea of austerity, many Brits are embracing it, harking back to the post-World War II era where saving, frugality, and making the most out of the least were matters of national pride.

Britain’s austerity program is known as the Big Society. Introduced by new Conservative Prime Minister David Cameron, the Big Society was written with the idea to devolve power from the national government. This means empowering communities and individual citizens to take ownership over their own success. A corollary is the federal government doing less, thereby reducing spending, eliminating wasteful programs, and becoming sustainable in the long term. Cameron describes the plan in five bullet points:

  • Give communities power to control their future
  • Encourage a zeal for charitable activity on the community level
  • Transfer power from central to local governments
  • Give more power to private sectors in public services
  • Open government information to the public

In principle the program is not very different from other European attempts at shaving their enormous deficits. The primary difference comes in the acceptance of the plan by the British people. As Anne Applebaum said in a recent Washington Post column,

Austerity…has a deep appeal. Austerity is what made Britain great. Austerity is what won the war. It cannot be an accident that several British television channels are running programs this year with titles such as “Spirit of 1940,” all dedicated to the 70th anniversary of that “remarkable year” of rationing, air raid sirens and hardship. One series, “Ration Book Britain” is even devoted to that era’s parsimonious cooking. “With bacon, eggs and sugar rationed, wartime cooks had to be jolly resourceful,” explains an advertisement for the show. Its host promises to “re-create the recipes that kept the country fighting fit.”

The question then becomes, how will the United States respond? Will we take the streets in protest like the Greek or will we hunker down, pinch pennies, and save our way toward success a la the British?

Are we willing to make budget cuts, even if it means some popular government programs will be scaled back? Are we willing to accept that America cannot afford its entitlements? Will we save more for our own retirements? Will we take ownership over our own healthcare? Basically, are we willing to make sacrifices? These are questions we must ask ourselves.

We must be the ones to ask because the current leadership in Washington sure isn’t. In the years following the recession the federal government has grown in size, along with our debt and deficits. We are witnessing a centralization of government unseen since the days of FDR.

While nations like Greece are placing their bets on the free-market principles we once upheld, the United States is flocking towards the failed model of Greece. We are creating a society dependant on government welfare, in doing so we should expect a backlash when Washington can no longer afford such spending. Let’s make the small, yet painful, changes now, before we have to make drastic and devastating changes later.

by Brandon Greife, Political Director of the College Republican National Committee