Sunday, 19 June 2011


When President Franklin D. Roosevelt took office in January 1933, he recognized the need to restore confidence in the American economy that was suffering from a crisis of overproduction as dramatized  by photographs of people in street corners selling apples for five cents. The problem with the economy was not that it was not producing, but that it was overproducing and precluding opportunities for capitalists to make a growing profit. The result, stock market crash, run on the banks, more than 25% unemployment, trade sluggishness, business bankruptcies, loan defaults domestically and internationally, and a decade of the Great Depression that infected the entire world.

What if FDR had opted for IMF-style austerity measures, instead of stimulative Keynesian policies? In other words, what if the US had lower taxes on the rich, raise consumption taxes, dismissed public employees, lowered wages, cut benefits, slashed social programs, and instead of absorbing surplus capital from the top ten percent of the private sector, FDR had decided to pour more money from the bottom up? Not only didn't FDR pursue such policies for fear they would drive unemployment to above 30% and invite social revolt, but no government in the world, from right wing to left wing, opted for what we would today label as IMF-style austerity measures that are designed to absorb capital from the bottom social groups and strengthen the top ten percent.

If the US and the rest of the world would not even consider IMF-style austerity policies in the 1930s (long before the IMF was established), why do such policies make sense today when many countries are faced with conditions not very different than those of the 1930s? That many apologists of the free market believe Keynesian economics is finished is understandable amid a crisis of the credit economy. But is IMF-style austerity the panacea, or a formula for deeper and prolonged crisis?

This is a question that many people around the world should be asking about the current neo-liberal push of IMF-style austerity that in many respects has also hit the shores of the US. Alarmists are warning that the US must cut its debt, that is not what the official figures indicate, but as much as $100 trillion if everything from private debt to state and local debt, to Social Security and other entitlement programs are taken into account.

There are those who argue that the US would do well to default on its debt rather than undergo the kind of monetary and fiscal austerity measures that the IMF imposes on borrowers like Greece, Ireland, Argentina, etc. Unlike chronic debtor nations invariably in the Third World or European periphery, the US was the world's largest creditor economy when the IMF was established. However, the US has come to the point that it may be faced with serious policy dilemmas that entail sacrifice on the part of everyone.

But should austerity come on the backs of the middle class and workers when it is the capitalists that profited from the cyclical crises? Is the current debt scare just another political tactic to strengthen corporate welfare and weaken the social welfare state, or is there genuine concern that indeed the system meltdown is inevitable?

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