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Austerity Everywhere: Fiscal Drags Coming Out of Great Recession

Austerity has clear negative consequences for Greece, but one of the major problems in that country is an inability to collect taxes. That’s why all the austerity measures to “increase taxes” in Greece, without setting up or funding a new tax collection system, made no sense. And the one solution that did move in that direction, to couple property taxes with power bills, has failed miserably.

You guessed it, people stopped paying their electricity bills and now it looks like the power company – which had to be bailed out last month – has stopped even trying to collect the levy.

“Well-informed sources suggest that the new bills the company is issuing do not include the property levy despite the law providing for the first installment concerning 2012.”

The government had hoped to raise €1.7bn-€2bn from the levy in the fourth quarter of last year. But a massive unions-led civil disobedience movement against this “injustice” scuppered that and a ruling that it was illegal to disconnect people’s electricity supply for non-payment sent the collection rate even lower.

I don’t have a really good answer to this, other than the fact that we know that continued austerity inducing a depression causes mass social unrest pretty much everywhere it’s been tried. If you want people to follow the law, you need to provide them with a glimmer of hope that the law will help them succeed instead of pushing them down into poverty. Maybe it’s civil disobedience, or maybe it’s just an inability to pay.

Meanwhile, the idea that this is just a problem limited to Europe, without consequences for the United States, has been rendered inoperative by simple math. Jared Bernstein took a look at budget deficits in the US year over year and finds that we’re implementing a significant amount of austerity of our own, despite the fragile economic state:

…what matters in terms of foot-on-the-accelerator is the change in the budget deficit, and the fact is we’ve been letting up right as the economy appears to have a slowed a bit. Add state fiscal drag and the growing unemployment insurance cuts and you get the picture.

On the first point, the figure compares the budget deficit so far this fiscal year with the one from the same months of last FY. Last year’s was $150 billion more negative. Annualized, that’s enough to drive the unemployment rate a half-point higher than it would otherwise be.

Then there are all the state job losses, which are also keeping the unemployment rate elevated, as I show here.

Finally, as my CBPP colleague and UI expert Hannah Shaw points out, over 400,000 long-term unemployed persons in 25 high-unemployment states have lost UI benefits so far this year as the extended benefits program is ending in states across the land.

This is a global phenomenon of austerity coming out of the Great Recession, which in some cases is pushing countries back into recession, and which in all cases is dragging on economic growth despite elevated unemployment.

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David Dayen

David Dayen