Times change, and the meaning of words often changes with them. The changed meaning, in turn, changes the times. The word “austerity,” currently one of the prominent buzz words in politics and economics, is a powerful example of how a change in meaning generates changes in conduct. Austerity used to describe a particular feature of the micro-world, where only the necessary is required and the superfluous is set a side. A room with one window, a table, a chair, and a mattress is the lodging of an austere person who lives there perhaps by want of means but perhaps for any number of other reasons, of which his tastes and his self-image seem the most important. An austere artist will seek to express what he wants by the minimum of means, a writer will be sparing in his use of adjectives and prefer two short sentences to a long one. Minimalism is a mark of elegance, and rich decoration becomes suspect. An austere style is defined mostly by what is necessary, but this is not necessarily a matter of necessity. It fits the poor, but also the rich. In wartime and times of adversity, austerity takes on an additional meaning, shifting the emphasis from the micro to the macro. Curtailing entitlements, disappointing reasonable expectations, rejecting demands that do not seem extravagant, all pass for being symptoms of austerity and matters of concern for what goes by the name of “social justice”. Politics becomes a contest between those who resign themselves to austerity and those who fight it. Receiving Value and Getting Used to It

Crowned heads of state in past centuries used to go about with empty pockets. There were always people in their entourage who carried the purse and made the payments if that seemed to be the royal wish and if value had been received. Value was sometime received without payment being deemed necessary. Some future quid pro quo by royalty for the value received was the usual expectation. This practice was greatly streamlined in our times, notably by French president Francois Mitterrand whose routine was to have restaurant meals, sometimes reserving the whole restaurant for his party of friends, without ever taking the trouble to settle the bill or having his staff pick it up. He received value, considering it as due to his person and to his office, without worrying about what it cost the provider of the value. Though this practice was by no means a standard that the other welfare states in Europe and in pre-Reagan America felt inspired to follow, it certainly did not deter open-handedness, as shameful and corrupt acts sometimes do. Politics spread benefits of many kinds to many groups in society, some of them genuinely needy and some not needy but influential. These beneficiaries received value that soon became an accustomed entitlement for which no compensating value was felt to be due, except a feeling of gratitude to the government or the state that claimed to provide the value. Feeling grateful and tacitly recognizing that the entitlement has created a moral debt of some kind in return, could only have been short-lived. Except for manna from heaven (even that is a doubtful exception), value received is matched by value rendered as a matter of accounting identity and not as a matter of equity. The value is received and rendered by different persons or groups, and the identity of the one is normally unknown to that of the other, everything going into a great big reservoir from which it flows out again when “The Tap” is opened. The reservoir is the place where “churning” happens: receivers of value render some of it and those who render receive some of it, so that redistribution will not be a wholly clear division between gainer and losers, yet an illusion of clear net gain for certain groups or classes will typically prevail. There also prevails an impression that all these matters are controlled by the state that has control of The Tap. Rendering Value to Ourselves

The match of necessity between values received and rendered is at the very base of the modern meaning of austerity. There is a simple case in which the match between values irrigating the welfare state and the taxes and loans to the government all originate in one and the same society, so that we are “rendering value to ourselves”. There is no balance on either side of the accounts for which cover is found outside our society. This cover, the balance of payments on current account, is almost always negative in all real welfare states. (Germany with a large positive balance of payments of 6-7 per cent of GDP, is not considered a “real” welfare state by the European Left). In its turn, it is covered by the acquisition of assets by foreigners in our society and an increase in our liabilities owing to them, forming the balance of payments on capital account. Before the persistence of such processes becomes too precarious, the base meaning of austerity remains in some sense neutral. Value continues to flow from The Tap to the beneficiaries. Beyond a certain point austerity will raise its unlovely head and the government will restrict the flow from The Tap, or may shut it off all together, depending on how it judges the effect on its own chances of retaining power. The governed, however, may well remain immune to such manifestations of reality and regard the austerity with indignation. The churning of large anonymous flows of value obscure from it the essential reason for imposing austerity, namely the fact that keeping up the flow of value they receive must imply the keeping up of the value that renders it—a fact that may require a reckless and barely sustainable pressure on the economy. Fueled by indignation and genuine hardship, large social forces will fight austerity. They will be driven by the belief that, were it not for a pig-headed government indoctrinated by obsolete economics, value from The Tap would flow to them undisturbed. All they would need to do to defeat austerity would be to regain control of The Tap. Growth, Austerity, or Neither

For more on these topics, see “What Economic Research Says About Fiscal Austerity and Higher Tax Rates”, by Robert Murphy, Jan. 7, 2013, and “Two Cheers for Fiscal Austerity, Parts I and II”, by Anthony de Jasay, August/September 2010. The scope for reducing the pressure on the economy to render the value to match the value received through an open Tap is enormous. In France, “social expenditure” absorbs 31.9 per cent of GDP, in Italy 28.6, in Germany 25.8, in Japan 23.1 , in Great Britain 21.7, in the USA 19.2 and in South Korea 10.4 per cent. Different as these countries may be from any number of points of view, their differences are neither large nor deep-rooted enough to consider such vast gaps between high and low “social expenditure” as set in stone. If however, the figures at the high end must be largely maintained or indeed increased, so must the need for austerity continue. However, it is hard to be optimistic about the prospect that it will or can be. Opponents of austerity are confident that growth would provide a simple remedy (a trivial proposition) and that vigorous growth could be restored in the very countries where “social expenditure” is the highest and the economy the most nearly stagnant, namely most of Continental Europe (a far less credible belief). All it would take is to open up The Tap wide enough. Higher expenditure would put the economy on a high enough growth path to raise the percentages we wish to increase and reduce the percentages we wish to lower. It so happens that it is the opposite type of medicine, namely fairly severe austerity, that produces this desirable result. At least it is doing so in the austerity-squeezed economies of Great Britain, Ireland, Spain and Portugal and may be on the verge on doing so in Italy. There is no recent evidence of a spending spree producing such a result. Japan is a doubtful case. France, maintaining record expenditure and refusing austerity except in terms of jam tomorrow, gets less growth at present than any sizeable European country. At present, austerity mostly means that large economies must not violate the rules that keep ordinary households solvent for too long, and that wishful thinking must bow to reality. This may be unpleasant but it is not all bad.

1. “Tap” is Anglo-English for the American-English word “faucet”.