Austerity, like trickle-down economics, has been relegated to the list of things economists don’t talk about anymore. Austerity’s core policies – hikes in interest rates, downward pressure of fiscal spending and wages – had their last stand with the European sovereign-debt crisis a decade ago, and the resulting public outcry made the “a-word” unmentionable, even in times of economic crisis.
So, on 21 September, when Federal Reserve Chair Jerome Powell announced his fifth interest-rate hike of the last nine months, this dirtiest word in economic policy was conspicuously absent from his remarks. Instead, Powell described the process of resetting the economy – through the introduction of increased unemployment and possible recession –as a necessary form of “economic pain.” Powell’s comments echoed those of his British counterpart, former chancellor of the Exchequer Rishi Sunak, in a letter to Boris Johnson: “[the public] need to know that whilst there is a path to a better future, it is not an easy one.”
This framing of monetary policy as some sort of war effort – hard work and individual sacrifice for the greater good –has been part of the playbook for instituting austerity policies for more than a century. In 1920, at the first international financial conference in Brussels, British civil servant Robert H Brand evangelized economic narratives focused on this “hard truth”: in order for the economy to get back on its feet after World War I, “the answer is a very painful one and yet a very simple one. We must all work hard, live hard, and save hard.” As Powell, Sunak and Brand demonstrate, the road to austerity is paved with vague euphemisms.
For a policy so reviled that officials can’t even speak its name, austerity continues to enjoy a remarkable century-long run as the go-to policy prescription for national economies in strife. This is even more remarkable when one considers that, as the work of political economist Mark Blyth and others have shown, austerity policies don’t actually work – at least not in their stated ends of boosting economic growth and reducing debt. If we know that austerity doesn’t fix what needs fixed, then why is it suddenly making a comeback?
Keynesian critics dismiss this paradox as a simple matter of bad policy informed by bad economic theory. But how does this response square with a world that is increasingly stewarded by Keynesian economists – a world in which the Keynesians are the ones courting austerity?
A more satisfying explanation emerges when we recognize that austerity is more than just a tool for managing an economy. Rather, austerity is a political project that is crucial to upholding the smooth functioning of our economic system.
In order for a capitalist system to work in delivering economic growth, the social relation of capital – people selling their labor power for a wage – must be stable across a society. Where prices or wages go up or go haywire, the system fails, and economic disaster quickly follows.
In this way, a country’s commitment to economic growth presupposes a certain sociopolitical order, or capital order. Every capitalist society needs accumulation at the top and laboring at the bottom in order to keep expanding its pie. This organization is neither fixed nor a given; it has to be constantly protected through economic policies. That’s exactly the function austerity serves: it preserves the basic class relations at the core of our economy, especially in times of social changes.
In the US, that social change is the rapid reconfiguring of the labor market since the onset of the pandemic. It is no longer the case that the lowest-paying jobs are eagerly taken up by a labor class; instead, many people have seemingly reexamined the merits of participating in a labor market rife with unappealing conditions. And as inflation makes wage work even less sustainable than it was before the pandemic, the problem is compounded.
The fiscal, monetary, and industrial measures that make up austerity are not, as they’re typically described, an economic war effort for the greater good. They are simply the crude tools for reestablishing the quiet disciplinary mechanisms that organize modern societies. For some, the short-term cost of a temporary economic recession is worth its structural gain; austerity restabilizes class relations and thus refurbishes the conditions for profits.
As we enter a period of “economic pain,” it is worth considering whether this endgame justifies it.
Clara E Mattei is assistant professor of economics at the New School for Social Research in New York City. She is author of The Capital Order: How Economists Invented Austerity and Paved the Way to Fascism, which will publish in November from the University of Chicago Press
