Effective long-term strategic economic planning specific to a country’s customs, traditions and culture is great for everyone: national stakeholders, citizens, employees, employers, businessmen, investors and governments. However, any type of economic planning for the Virgin Islands must take into account the various nuances, arguments and discussions of contemporary western economics.
The proceeding story continues the assessment of austere thinking in economics. The narrative assesses austerity as a model in strategic economic planning in a post-disaster VI.
Austerity is top down and asserts that the wealthy are the key drivers of an economy. Stimulus does not necessarily oppose the austerity culture of top down. However, stimulus argues that the masses at the base and middle of the wealth pyramid are the key drivers of the economy.
Austerity is the idea that “unfettered private enterprise” is the answer to growing an economy from recession to growth.
Preceding stories in the series of articles on post-disaster economics have asserted that austere economic thinking is the belief that deregulation, along with tax and public spending cuts, leads to reductions in national debt and annual deficits. Austerity creates a competitive economy.
Austerity ‘bias’
There is a bias towards austerity in certain powerful circles. Austerity is simply another name for supply side economics.
Austerity drives the thinking that business and the entrepreneur are omnipotent in the odyssey to prosperity. Austerity remains a powerful idea in western economic thinking.
Okay. Austere thinking — which has been called “a perverse belief that economic hardship is good for the soul” — has led to a number of observable outcomes in western democracies: one, a great increase in wealth inequality; two, the destruction of the idea of a middle and working class; and three, a divergence of demand and output in favour of output.
Output has increased with the triumph of capitalism. Public policy in the west favours the investor over the consumer, the businessman over the customer. The common term used is trade liberalisation. Austere thinking birthed globalisation. And globalisation was further strengthened by the information revolution.
Now, austerity is a belief in top down, trickle down. It is a culture that has increased the output of goods and services. Businesses have been encouraged in a super friendly business environment that places free enterprise on the proverbial pedestal.
However, austerity has also brought about a fall in consumer demand in real terms since the end of the Great Recession in 2009. This is an imbalance driven by the impoverishment of the middle and working classes, by a massive transfer of wealth from the base and bottom of the wealth pyramid to the pinnacle.
Deflation threat
Trickle down — the idea of wealth trickling down from the one percent to the 90 percent — is an austere narrative that has threatened the western economy with deflation as consumer demand has contracted as a result. Then, consumer debt has increased, making for a double whammy.
Deflation occurs when there is an excess of supply over demand, leading to falling prices. Deflation is further strengthened by burdened debtors who keep their spending down, their wallets zipped. Deflation is not considered healthy by economists who see a healthy economy as one where a small rise in inflation points to strong consumer demand and an ability of businesses to meet that demand.
To solve the problem of deflation, economic policymakers in western capitals allowed for the growth in credit to bridge the gap between falling demand and increasing supply. A highly leveraged economy was the result. Credit rises increased the profits of both the banks and the businesses where credit purchases are made.
But consumers and businesses borrowed heavily to meet demand and investment needs. However, the businesses owned by the one percent increased profitability, and the owners of those businesses grew enormously wealthy as consumers and borrowers became increasingly indebted.
This was a seesaw invariably weighted towards Jack the Billionaire Corporation Owner.
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