Austerity has failed to bring economies out of recession and yet its defenders claim victory on the basis that European economies are no longer collapsing. But if that is the benchmark, we can say that “jumping off a cliff is the best way to get down from a mountain” as Nobel Laureate economist Joseph Stiglitz puts it.
High taxes, low spending, increased privatisation, monetary contraction and high interest rates have been a disaster globally as well as at home. With decades old reliance on the IMF, Pakistan is yet to see a silver lining to the cloud of inflation and recession. Our government thinks that lower corporate taxes will stimulate investment, which is nonsense. It’s not the lack of savings and investment that are holding our economy back, but the low demand on the consumer side. New projects can’t be successful if people don’t have the money to buy new goods and services. With the tax regime favouring the business man, exports and investment in industry have been falling, even before the PTI-PAT circus came to Islamabad.
Increasing taxes and expenditures in tandem stimulate the economy. And if taxes target the rich, and spending targets the poor, the multiplier can be especially high. This is also theoretically sound economic policy, but it hasn’t been tried since the 1980s. After the 1980s, any such suggestion was wrongly termed socialism, and Cold War paranoia made sure that this “socialism” does not take root in any US-allied country. The IMF and WTO further helped wipe out these types of recommendations for expansionary fiscal policy. States like ours who have always stuck behind the US, always made policy by what was recommended to us by the IMF. Additionally, the austerity brand of economics is also institutionalised in the education of economics. So even if there is a solution, mainstream economic theory is so embedded, that economists today are at a loss to fix the system.
Even the European Union economies still face stagnation that might turn into a triple-dip recession. Real GDPs remain lower than pre-recession (pre-2007) figures. Greater economic production is wasted due to interest payments on debt. Economic systems are hardly ever allowed to reset. We might never recover if policymaking does not change.