The Morality of Fiscal Austerity

All across America, in this new year and in this new Congress, there is a call for fiscal austerity on the part of local, state and federal governments. We are told that because of wasteful spending of years past we now have to cut spending in order to balance budgets and avoid raising taxes. This fiscal austerity is seen as a call to virtue even if it means cutting the services and benefits of the working and middle classes.

This austerity is considered virtuous because it is consistent with free-market principles. On the contrary, it is morally wrong. There is nothing automatically moral or deserving about market outcomes. Market principles, that is, the right of the individual to private property and the right to maximize individual well-being have become first principles, taking precedence over the rights and well-being of the community. We are choosing free-market principles over community-based morality.

This conflict between free-market principles and community-based morality is at the heart of what is dividing our country. It is what is driving the national debate that leads people to say our country is going in the wrong direction.

About 30 years ago America began a shift to values rooted in individualism and the logic of the free market. At its heart is President Ronald Reagan's "government is the problem" and Margaret Thatcher's "there is no such thing as society."

If there is no society and government is the problem, society cannot be blamed for any social problems.There are no common goods, no common responsibilities, no common failures. Individuals are responsible for society's problems. Therefore, punishing the poor for failing the market test is appropriate. Imposing austerity is the only logical remedy.

I used to wonder why no one was angry at the rich for taking all of the increase in income over the past 30 years or why no one was up in arms at the bankers for skimming off billions of dollars while abusing the economy into near collapse. It seems so unjust.

Market morality explains it: the rich are, by free-market standards, efficient and therefore they "deserve" what they get. They have the right to use the money they earned as they see fit, even for buying government subsidies and lower taxes. The poor, the unemployed, the bankrupt are, judged by market outcomes, to be inefficient. By the very fact that they are poor, they demonstrate that they have failed. This market morality punishes the needy poor with austerity and cuts taxes for the successful rich. Accident, illness and the natural hardships of life are just part of the game.

This is being presented, with some justification I think, as a constitutional question. We are asking: what is the place of government in our daily lives? Is there a moral obligation to our community of fellow citizens or do we just accept market outcomes?

The divide in America's civil society thus arises from the fact that these two different value systems are competing to establish the character of American political and economic discourse. In which mold do we cast our values: individualism or community?

Political reality says that we make economic and moral choices by picking some point along that spectrum from individualism to community. The right and the left, Democrats and Republicans, conservatives and liberals are in a tug-of-war trying to pull the country in one direction or the other.

The positive response to candidate Obama's call for change was clearly a rejection of the market values and market morality, that too root during the past era. The move to individualism, smaller government and deregulation went too far under Presidents Reagan, Clinton and Bush I and II. It was a central fact in the economic and financial crisis that still dominates our economy and politics. This failure led very clearly to a demand for community oriented values. Social progress is again being defined in terms of the common good. Healthcare and financial reform were necessary because they are moral issues

The Great Recession seriously cut government revenue. Now when we should be spending more to bolster aggregate demand, we are called upon to spend less in order to be virtuous and balance budgets. In the current political debate, this call to austerity and limiting government debt are the individualistic, market-oriented choices.The community choice would be government action to address the problems and a significant stimulus package to maintain the recovery.


This fiscal austerity is not virtuous; it is immoral.