Austerity is not the straightforward subject which it sometimes seems. Increasingly, the austerity which matters - and nations need to avoid - isn't necessarily what policy makers are well positioned to address. Unfortunately, Paul Krugman contributes to the general confusion by insisting austerity is inevitable in the UK, due to the fact Cameron won the election. Austerity in terms of what...or whom?
One reason austerity appears "inevitable" during budget cutbacks, is that few policy makers get the chance to prioritize the knowledge based services which populations find most important. In these circumstance, no amount of money seems to ever be enough. Plus: do individuals and private enterprise have adequate means to provide the time based endeavor which no longer has government backing? In particular, the lack of a marketplace for time, makes it difficult to discern services priorities and vital knowledge capacity.
Given this reality, how much of a problem might austerity eventually represent for developed nations, which now experience low economic growth? While monetary policy is capable of overcoming many limitations of fiscal policy, it can't directly address a missing services marketplace. And governments can only partially compensate today's high skill major players, compared to the support they provided prior to the 21st century. Much of the slow pullback on growth that is now occurring, has to do with the changing nature of this earlier commitment.
Some developed nations are already suffering from problems which austerity has created, in the more immediate sense of governmental mismanagement and financial chaos. Just the same, no national government can afford to consider itself immune to eventual budget dangers, so long as the productivity imbalances between tradable and non tradable sectors are not addressed.
Governments and special interests alike continue to undermine the productive capacity of both fiscal and monetary processes. So many long term monetary commitments now exist between governments and special interests, that money is scarcely able to fulfill the needs of populations as a whole. Economists are mistaken in assuming that money need not return to the normal and routine functions it still held, prior to the Great Recession. Once, one associated the disinclination to consider long term economic circumstance ("in the long run we are all dead") with Keynesian thought. To what degree has this mindset also become the attitude of business interests and policy makers?
Instead of defeatism, new economic strategies are needed for long term growth. How can knowledge use and service formation be generated through broader, more direct and monetary means? To be sure, fiscal policy still matters. However, with so many government commitments already at stake, fiscal policy no longer has the flexibility it once did, to address the most important issues of the present.
It will take decades, to gradually step back from contractual commitments which evolved through impersonal and top down means. Meanwhile, populations can build reliable economies on more personal and decentralized terms. Austerity remains a threat for any nations which are compelled to rely on pensions and related entitlements, to address the services needs of advancing age. When time value is tapped alongside monetary value, there is extra support for every safety net. Fortunately, safety nets of the future can go well beyond what populations are able to gain through financial assistance - particularly when demographics don't line up well monetarily, with the needs of aging populations.