Austerity, Debt and the Middle Class: What Europe Can Teach Us

11/09/2011 11:24 am ET | Updated Jan 09, 2012

The first casualty of war is truth, they say. The first casualty of debt is the poor and middle classes, and that is a truth that's just becoming visible. The current European crisis is forcing us to look at our unspoken and unexamined assumptions, and it's not pretty. The uniform response to unrepayable debt, in Greece and Italy, is a reduction in the government activities that created and support the middle class. There is no real alternative being pursued, and no grand debate forcing a society to choose and define itself. There's one idea and one idea only: Austerity, and a reduction in public expenditures, pensions, programs.

Put aside your feelings about "austerity" for a moment, put aside the intuitive sense that it isn't fair and isn't necessary, and let's examine the argument.

These European nations, and the U.S., have spent money well beyond what they bring in. It is an unchecked, permanent debt spiral, with no prospect of repayment without a convulsive set of changes. The lenders, mostly large banks, will shortly stop lending out of fear they won't be repaid. These governments will then default and economies will stall or collapse. Rather than let that happen, the wealthier economies are willing to pour money into the failing economies, but only if they adopt austerity measures, reduce government spending and reduce government participation in the economy. Pensions are slashed, programs dismantled, retirement ages raised, public assets sold off and the objective quality of life of most citizens is reduced.

If one wishes to reject "austerity" or... what? There's hardly a leaf stirring in that forest. And logically there's only one place to go. Assume that we agree that an economy cannot permanently spend more than it brings in, which seems a fair assumption. If life-changing cuts in spending are unacceptable, all that's left is raising revenues. Tax increases. In some societies that's theoretically easy. In Greece massive public tax evasion has crippled the ability of government and society to function. If people would just pay what they now owe, problem solved. But in Ireland, or Portugal or Italy it's not so easy. There, and in the U.S., only an increase in taxes will provide an alternative to massive public sector reductions.

There's a real argument to be had here, and genuine dangers in either austerity or tax increases. But the world is frozen in a political climate that has made tax increases illegitimate and impossible, so impossible that they are not really discussed and on the table. Is any political system actually grappling with questions like, "What is the proper amount of money government can take out of the private sector? Will tax increases stall or kill economic growth? Which taxpayers should shoulder a greater tax burden? What are the real-life consequences of massive reductions in public activity?" I don't see those questions debated anywhere, certainly not in Europe. Some left-wing politicians and unions protest against austerity, but are shrugged off as special interests protecting their privileges, while the "grown ups" stream down the austerity road like lemmings.

Like each of us, I have my own answers. But there's no way any of us can assert that we've found the right answer. I'm miles away from insisting that I've got that answer. I just want a real debate, a real opportunity to choose one model or the other. And the failure to engage in that debate will produce not just an economic debacle, and a change in the relationship between people, and between people and society, it endangers the idea that democracies can solve difficult choices and that elections are the place where we make these decisions. (A referendum of the people in Greece to decide on austerity?? Horrors!!)

Permanent income and social inequality, permanent economic stagnation, low birth rates, declining quality of daily life, this isn't the inevitable death spiral of a once ascendant culture. These are the explicit policies chosen by leaders of that same culture.

The only glimmer on the horizon is, by the way, Occupy Wall Street. It is a bit unfocused, at least on a political or economic agenda, and it certainly needs to choose a path more quickly than it wants. But its strength is in its initial premise: The world is being operated in the interest of the top 1% of society, and that's not right, it's not effective, it's not fair. That resonates, that can be picked up by political leadership and translated into policy, like Franklin Roosevelt did. I'm not being nostalgic. I'm being realistic about where we stand today, as citizens of a global economy. We're closer to the edge than we think.