Needed: fiscal responsibility, not fiscal austerity

Usually, the title for one of these blog postings comes after writing most or all of the article.  Sometimes I begin writing by entering a couple of words that are indicative of the subject and intended only as a place-holder for the eventual title, and then return later to replace or augment those words and make them into the finished title.  Every so often, when using the place-holder approach I forget to return and complete the title before publishing, invariably causing an "aw, shucks!" moment (or something similar).

At this point, I have started writing with what seems like a truly momentous title, only to find it difficult to organize my thoughts enough to write a coherent article that will do justice to the title.  This isn't for lack of ideas and material.  Instead, it's because there is so much to be said on this subject.

"Fiscal austerity" is a term that has been bruited about ad nauseam for the last three years.  The political and economic discourse here in America and throughout Europe is saturated with demands for fiscal austerity.  Fiscal austerity is supposed to be a virtuous path and a worthy goal for governments, people and societies. 

It's time to recognize that all this talk of fiscal austerity is sucking up far too much oxygen in the political and economic atmosphere.  Atmospheric oxygen has an important use:  it is to make things live and grow.  The promotion of fiscal austerity has very little in the way of new life or growth to show for itself.

Fiscal austerity might work for individuals and households when they have made poor choices or have unexpectedly lost a job; sometimes austerity is the only remaining option.

But fiscal austerity does not work for governments; the financial benefits to be gained will be temporary and will soon be overwhelmed by the additional damage that is done through austerity.

Maybe it's just me, but I cannot think of anybody in the public eye who has been caught on camera smiling, or even looking slightly pleased, while talking about fiscal austerity.  That should be our first clue that somebody has brought something to the picnic without tasting it first.

"Fiscal responsibility" is a better goal.  (Opposing viewpoints are welcome, but if you have one you might want to hold on to it until you read the rest of this article.)  This is a goal that can be voiced with a smile--even if it's only a Mona Lisa type of smile--if there's a feeling that responsible actions lead to worthy growth.

In actuality, Americans have already begun to act with fiscal responsibility.  Household debt has been reduced, consumer confidence measures are increasing, and consumer credit has started an uptrend.  Individual situations vary, of course, and for some, these events have come about with pain from adopting frugal ways or accepting reduced circumstances.  Overall, though, there has been enough progress in debt reduction so that more household resources are now being directed towards purchases of items that have been delayed for years.  These items include significant and durable things like automobiles, appliances and furnishings.

Responsible actions yield positive results.  In aggregate, American households have acted responsibly, and now they are building on those actions.

The other side of the coin is that irresponsible actions yield negative results.  To incur obligations that are known to be impossible to be upheld in the future is irresponsible, and inevitably leads to distress--financial or otherwise--and to the need for living in reduced circumstances, at least during a period of repair and rebuilding. 

Memo to Congress and all political candidates in this election year:  Whether it's household debt or national debt, we get it.  We've been living through the household debt thing, and have been cutting it down, for years.  Now it's your turn; work on reducing the national debt.  But do it responsibly; we have acted that way, and so should you.

Total austerity is also irresponsible.  It immediately shuts down economic activity and reduces circumstances for people without regard for the consequences.  Based on their current consumer behavior, the American population--taken as a whole--seems to recognize this. 

National debt and household debt are two very different things.  It would be a misstatement and a disservice to imply that national debt can be managed and reduced in the same way as household debt.

But national debt and household debt share two common characteristics.

First, both a nation and a household can take on additional debt until potential lenders decide to not offer any more loans of money because they fear lack of repayment.

Second, national debt and household debt both contribute to economic activity.

Which brings us to national governments, and how they should act--or at least, how our own government should act--so as to be as responsible as the people they represent and govern.

To witness the irresponsibility of governing fiscal austerity in action, all that is needed is to take a look at current events in Europe.  The European Union is teetering on the brink of recession.  National debt is the underlying problem.  The cause of economic recession, though, it not simply that debt; instead, it is how the debt issues are addressed. 

Governmental fiscal austerity is the theme of choice in Europe for addressing the issues caused by excessive debt.  It's an irresponsible choice because it is not working.  The countries with the most excessive debt problems--notably Greece--now have shrinking economies.  The other less indebted countries--such as Germany, France, Finland and others--are being dragged down, too, by the fact that the debtor countries are buying less of what the creditor countries have to offer because they have a diminished capacity for consumption.

A fiscally-responsible governing program in Europe would have been to balance policies and actions to stabilize the debt issues with policies and actions that would promote growth.  Instead, there has been no evidence of any concerted effort to promote growth.  The focus is on fiscal austerity as a precondition for fiscal assistance.  In the meantime, the national economies shrink, which makes the issues associated with the debt load even worse than they were when the whole thing started. 

Without growth, any attempts to address the issues of national debt just become a vicious circle of tail-chasing.  That is what you get with fiscal austerity.

What the Europeans need--and what we need here in America--is a government that acts with fiscal responsibility.  We need a governing plan that addresses the issues of national debt at the same time that it promotes national economic growth.

This will not be a simple plan.  It cannot be the immediate slashing and reducing of government and its expenditures.  That's what is being done to Greece, and Greece is a basket case now.

Instead, the reductions will have to be gradual and accrued over time.  Additional near-term investments to promote growth must be given full consideration, and some of them will be adopted.

This would be fiscal responsibility, and it's also just plain common sense.