AltAusterity Digest #109 August 29 - September 1, 2019

A decade of austerity since the global financial collapse has severely limited Washington’s ability to counter another recession. With last months inverted yield curves renewing concerns about an economic downturn, policy analysts are concerned that the normal tools used for countering a recession – lower interest rates, higher spending and reduced taxes – may not be available this time around. The Federal Reserve has been hesitant to raise its already historically low interest rates, and the White House and Congress are faced with deficit set to pass $1 trillion, brought on by tax cuts for the wealthy. The Committee for a Responsible Federal Budget has estimated that when the US enters the next recession its debt to GDP ratio will be twice as high as in 2008.

For The Guardian, Clara Mattei and Sam Salour make the case that austerity is a political choice, not an economic necessity. Their piece comes following Financial Times columnist Martin Wolf’s endorsement of the book Austerity: When it Works and When it Doesn’t by Alesina, Favero and Giavazzi. Praise for the new work has also been given by economist Kenneth Rogoff. However, Mattei and Salour criticize the book and its public acclimation for presenting austerity as a “depoliticized” and inevitable necessity for increasing GDP rather than as a political project that benefits a small minority of the already wealthy. Despite previous studies by Alberto Alesina being consistently questioned for their accuracy, they are consistently used in public discourse to justify austerity.

Alberta can expect deep austerity measures to be implemented in the fall budget. Premier Jason Kenney’s panel to assess Alberta’s finances delivered its report this week describing a “critical financial situation” and warning of a “fiscal cliff.” Former NDP finance minister Janice MacKinnon, who chaired the panel, has advised Kenney to cut government spending by 1% through to 2022-23, which when factoring in inflation and population increases would amount to a real-terms 15% cut from current levels. The panel was not permitted to consider raising taxes despite Alberta’s per-capita tax revenue being lower than any other province.

UK Chancellor Sajid Javid has declared an end to austerity with an announcement of £13.8bn of investment in areas including health, education and the police. Despite the announcement, the Institute for Fiscal Studies (IFS) has stated that spending would still be 3% below its levels in 2010 and more than 9% lower in per person terms. However, spending commitments are uncertain as the UK economy may slip into recession if the economy shrinks again between July and September. In a Treasury Select Committee hearing, Bank of England governor Mark Carney stated that if the UK leaves the EU with no deal, the economy could shrink by an estimated 5.5%.

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