Wed, Oct 10, 2018 - Page 9 News List

Austerity is the wrong prescription for the world’s well-being

By Larry Elliott  /  The Guardian

The quack doctors rolled into town just as the global economy had come off the critical list. It was 2009 and the message from the austerity medicine show was simple: The only way back to full health was a course of heavy-duty cuts.

Expert opinion was divided. There were other diagnoses available. There were economists who said austerity was the equivalent of going back to the days of blood-letting — but they lost the argument.

The prescription, although it varied a bit from country to country, was pretty much the same across the developed world: Get those budget deficits down.

The upshot was that the global economy had a relapse and has never fully recovered. Officials at the IMF, which meets for its annual meeting in Bali, Indonesia, this week, eventually admitted that they had underestimated the power of fiscal policy — taxes and spending — to boost growth when every country was struggling and interest rates were already at rock-bottom levels.

What is more, because austerity choked off growth, it took longer than expected to bring budget deficits under control. Voters who had initially been seduced by the idea that everybody needed to do a bit of belt-tightening grew sick of austerity as the consequences of year after year of austerity became increasingly visible.

Even so, the argument between the practitioners of austerity and their opponents continues. It is going on between British Prime Minister Theresa May, who has said austerity is over, and the UK Treasury, which says it is not. It is going on between the EU and Italy. And it is going on in academia, between those who think every pound spent by the public sector is a pound unavailable for the private sector, and those who think the idea that you can expand the economy through cuts when it is struggling is a contradiction in terms.

Nor is this a debate exclusive to economists. Eyebrows were raised among health professionals last month at the news that UK life expectancy in 2015 to last year had remained virtually unchanged on the previous three years — the first time this had happened since the early 1980s.

Given that the early 1980s was also a time of deep economic recession, there has inevitably been speculation that austerity is to blame for the stalling of life expectancy.

In truth, it is too early to draw that conclusion, but it is certainly the case that pressures on the British National Health Service have been mounting, even with a ring-fenced budget.

Health spending has been flat in real terms since 2010, once a rising population is taken into account — easily the least generous settlement in its 70-year life.

Better examples of the impact of austerity on health are provided by other countries. The shock treatment handed to Russia after the end of communism in the early 1990s resulted in life expectancy plunging, particularly among men.

More recently, an article in the Lancet by researchers from the University of Washington has analyzed the impact of austerity on life expectancy in Greece. The findings make grim reading.

Greece, which endured a slump longer and deeper than the Great Depression in the US, was forced by the so-called troika of the IMF, the EU and the European Central Bank to cut health expenditure at a time when other European countries were raising theirs.

Under Greece’s bailout, health spending fell from 9.8 percent of GDP in 2008 to 8.1 percent in 2014, a time when national output was contracting rapidly. The country’s death rate had risen by about 5.6 percent in the decade running up to the first bailout in 2010, but then jumped by 17.6 percent in the six years that followed.

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