As we in Alberta brace for an "austerity budget"one can't help but notice, co-incidentally, that the predicted deficit is roughly equal to what Canada's big banks made in profits last quarter ($7 billion). Canadian banks are doing quite well thank you very much, after, contrary to popular belief, Canadian tax payers bailed them out to the tune of $300 billion.

Wall Street broke records last week and is patting itself on the back for their business acumen,  completely forgetting the government hand outs that saved their ass a few years back.  And Exxon, a major player in the Alberta tar sands, recently reported the largest profit ever recorded by any company, ever.

Canadian banks and Wall Street are raking it in yet we are told we have to suck it up to save ourselves.  The problem is that, even if the economy is as bad as we are being told, austerity does not work.

In his article "The Anti-Economist: The Austerity Myth" (Harper's Magazine/October 2012) author Jeff Madrick argues that the  austerity that is being forced upon us simply doesn't make economic sense.  Here are some excerpts:

As economic adversity continues to spread, from Athens to Madrid, London to the Beltway, austerity has become a most dangerous idea. What dominates the world is the popular theory that if countries just tighten their belts, strong growth and lower unemployment will soon follow.  It is the opposite of the Keynesian lessons learned form the Great Depression and is supported by neither historical nor empirical evidence. The world's leading economic commentators, Nobel Laureate Paul Krugman of the New York Times and Martin Wolf of the Financial Times have regularly railed against austerity but to little avail.

Advocates of austerity in Western Europe have claimed that it would rapidly reduce budget deficits and calm financial markets.  Instead, it has failed in every country in which it has been applied.

Imposed on the financially shaky European nations by their more robust partners, particularly Germany, it is largely responsible for unemployment rates approaching 25% in Spain and Greece, which was the level reached in America during the Great Depression.

To appreciate the hold austerity has on otherwise intelligent economists, we must understand that it is as much a superstition as an economic theory.  Like all superstitions, its roots are deep in human nature.  Self-denial, from the Odyssey to the Old Testament, has been a traditional reaction to difficult circumstances...

...The problem is that although austerity may work for individuals, it seldom works for economies.  To the contrary, frequently it makes matters worse. (Because as demand for goods and services fall, workers will be fired and business will not invest.)     Keynes message in a nutshell.  He argued that government had to supply the spending for goods and services that would restore incentive to invest while simultaneously lowering interest rates.

The depression of the 1930s should have disabused economists of the belief in the self-adjusting propensities of free-market economies.

Academics in Britain and America had asserted that stimulus is not necessary and that it does not work.  They claim government spending would have little bang for its buck as consumers would not spend and private borrowing and productive investment would be crowded out...This theory is mostly baloney, especially during economically weak periods. If Americans are given money now, they will certainly spend it.

Economist from the International Monetary Fund, no hotbed of progressivism, found that "when governments made deliberate austerity decisions to cut deficits, ...in almost all such cases, unemployment rose and growth slowed - just as is happening today.

In a classic example of hypocrisy, Republicans themselves are demanding military spending not be cut because it will cost jobs.

Higher levels of Medicaid spending has also resulted in increased growth and higher employment.

In the end, given so much evidence to the contrary, the popularity of the austerity myth largely owes to the power of a privileged elite.  This is a class struggle.  Austerity is essentially about smaller government, and a smaller-government ideology means lower taxes and fewer regulations - a boon to big business, especially the finance industry and the rich.

Additional spending should also be aimed at building America's economic foundation, which requires investment in educational quality, especially for the poor and in infrastructure.

...budget- balancing obsessions will make a strong recovery unlikely.

Leaner and meaner may feel good to some, especially those at the top who don't bear the pain,but it will make what ails us much worse.