Disguised austerity

After World War II, when growth and development problems became the most popular topics among economists, some new terminology was introduced into the literature of economics, and not just for scientific curiosity but also political reasons amid the Cold War between the Western alliance and the Soviets.

One of the most popular of them was “disguised unemployment.” This kind of unemployment, which was generally seen in the agricultural sector, was supposed to be one of the main problems in especially poor countries. It meant that more than enough people were employed on farmland mainly for social reasons which decreased productivity and caused the continuation of poverty. It is still accepted as a serious problem in all developing countries.

Now is the time to introduce a new term that can be defined as “disguised austerity measures.” As everybody knows, governments in almost all troubled European countries try hard to implement austerity measures openly, not in a disguised way, as they are obliged to show that they are decisive in rebalancing their economies in order to get promised financial help. However, if a politician during his election campaign promises he can accomplish that goal without implementing any austerity measure and the people believe in such promises, electing him to the most important post, what will he do? To avoid more serious deficit and debt problems, he will be forced, of course, to implement some austerity measures without using that unlovable word. Now this is the position of President François Hollande in France.

It not easy, of course, to disguise the implementation of austerity measures. They hurt and the people feel it. However, all seasoned politicians can find a way to present bitter medicines with a sweet exterior. Again, it is not easy because austerity measures simply mean cutting government expenditures and raising taxes in order to control the budget deficit and public debts. The implementation requires cutting wages and salaries in the public sector and trimming social aid programs in addition to raising taxes and introducing new ones. These are good, of course, for restoring macroeconomic balances, but not so good for individuals who face a reduction in their real incomes.

Recently, when Hollande made his budget speech, the French people learned how austerity measures were presented without pronouncing that unlovable word which, according to the media, the president does not like. However, cutting government spending by around 30 billion euros and raising taxes by 20 billion euros cannot easily be given another term.

Another critical point which is the subject of discussion not only in France but all over Europe is Hollande’s approach to taxation. He has said several times that he is opposed to general tax hikes on “ordinary people” and prefers to tax the wealthy portion of society. However, memories are still fresh. Thirty-two years ago, another Socialist president, François Mitterand, tried similar ways of restoring a French economy that did not then need any restoration, destroying all macroeconomic balances within a short period of time. Some part of the French media is now condemning a very rich man who decided to move his business to Belgium. Thirty-two years ago, French businessmen did the same, but nobody condemned them because President Mitterand at least did not deign to use the rich-poor discrimination to calm the “ordinary people” who faced difficulties created by illogical policies.

France’s economic woes, of course, are not as big as other troubled European countries’ problems. However, it is rational to take necessary decisions in order to control deficit and debt problems without harming already-weak growth and employment. If the new French government is successful in carrying out this difficult task, people will not care whether the name of these policies is disguised austerity measures or not. On the other hand, if these policies fail to open new job opportunities and speed up growth, people this time will surely “condemn” whatever government called for the implementation.