Environmental Engineering Reference
In-Depth Information
This was the general strategy for many governments in recent years as they grappled with the
first phase of the global financial crisis. The US and stronger members of the EU experienced tan-
gible but limited success at engineering a recovery and averting a deflationary meltdown of their
economies through deficit spending. However, the fundamental problems that led to the 2008 crisis
were merely papered over.
The limits of this course of action have been revealing themselves as the US “recovery” fails
to gain much traction, Chinese growth winds down, and the European Union slips in and out of re-
cession. Further stimulus spending would require another massive round of government borrowing,
and that would face strong domestic political headwinds as well as resistance from the financial
community (in the form of credit downgrades, which would make further borrowing more expens-
ive).
Meanwhile, despite much talk about the potential for low-grade unconventional sources of oil
such as tar sands and tight oil, world energy supplies are in essentially the same straits as they were
at the start of the 2008 crisis (which, it is important to recall, was partly triggered by a historic
oil price spike). And without increasing and affordable energy flows a genuine economic recovery
(meaning a return to growth in manufacturing and trade) may not be possible. Thus financial pump
priming will yield diminishing returns.
The pursuit of business-as-usual appears merely to lead us back to the sort of turmoil seen in
2008; however, next time the situation will be worse, as governments and central banks will already
have exhausted most of the economic stimulus ammunition. If they are able to get ahead of debt de-
flation and deleveraging by the massive “printing” of new money, the eventual result will be hyper-
inflation and currency collapse.
B. Simplification by austerity.
In this scenario, nations pull back from their current state of over-
indebtedness and placate bond markets by cutting domestic social spending and withdrawing safety
nets put in place during the past few decades of steady growth. This strategy is being adopted by
the United States and many EU nations, partly out of perceived necessity and partly on the advice
of economists who promise that domestic social spending cuts (along with privatization of govern-
ment services) will spur more private-sector economic activity and thereby lead to a sustainable
recovery.
The evidence for the efficacy of austerity as a path to increased economic health is spotty at best
in “normal” economic times. Under current circumstances, there is overwhelming evidence that it
leads to declining economic performance as well as social unraveling. In nations where the aus-
terity prescription has been most vigorously applied (Ireland, Greece, Spain, Italy, and Portugal),
contraction has continued or even accelerated, and popular protest is on the rise. Even Germany,
Europe's strongest economy, is being impacted. As Jeff Madrick has argued in the
New York Review
of Topics
,
4
policy makers are failing to see that rising deficits are more a
symptom
of slower eco-
nomic growth than the
cause
.
Austerity is having similar effects in states, counties, and cities in the United States. State and
local governments cut roughly half a million jobs during 2009-10; had they kept hiring at their pre-
vious pace to keep up with population growth, they would instead have added a half-million jobs.
Meanwhile, due to low tax revenues, local governments are allowing paved roads to turn to gravel,
closing libraries and parks, and laying off public employees.
