Daily Austerity Watch: The Psychological Toll

The economic situation in Greece isn’t a Greek Tragedy.  It’s just really depressing.

Today, the financial press reported that Antonis Samaras, the head of the opposition New Democracy party, was balking at the government’s plans for additional tax increases and spending cuts  to win a second bailout from the IMF and European Union.   Samaras, perhaps taking a page from the U.S. Republican Party, advocates cutting taxes and speedier privatizations, the New York Times said.

Prime Minister George Papandreou is already under tremendous pressure to achieve political consensus while anti-austerity discontent among the Greek people seems to grow louder by the day.   At least Samaris showed up to the meeting called today  by Papandreou to discuss the country’s fiscal problems.  The head of the Greek Communist Party, which is behind the austerity riots and is gaining in popularity, boycotted the gathering.

Spanish Prime Minister Jose Luis Rodriguez Zapatero is the latest politician to feel the wrath of an angry electorate.  His Socialist Party sustained huge losses in local elections largely because of voter anger over austerity policies he implemented to prevent his country from hitting a fiscal death spiral like its neighbor Portugal.   Meanwhile, Spain’ borrowing costs have soared as the competition to replace Zapatero gets underway.

Leaders in Greece and other cash-strapped countries are learning that all the dire economic pronouncements in the world can’t overcome human nature.  The worst economic decline since the Great Depression has taken its toll on the psyches of people around the world.  They have grown weary of hearing politicians continue to call upon them to make sacrifices as their wages go down and their cost of living goes up.  Some on Wall Street call in “austerity fatigue” and it’s very real.

Poll after poll shows this phenomena.   U.S. voters, for instance, say they are worried about the federal deficit but repeatedly balk at being asked to make sacrifices such as cut spending on entitlements, which make up a huge percentage of federal spending.   This is pure fiscal fantasy.

The debt crisis is for real.   It will only get worse in the coming years as Baby Boomers retire in droves and the costs of social programs balloon.  Critics point to  the rise in tax receipts as evidence that the spending cuts over the past few years need to be restored.  They also say that the austerity policies are choking off the oxygen needed to sustain the fragile economic recovery.

While these criticisms have some validity,  think of the government as a morbidly obese person who loses 5 pounds on a diet who rewards themselves with a donut even though it defeats the purpose of their weight loss program.  Decades from now, the austerity generation may be as noted for their thrift as their ancestors who lived through the Great Depression.

–Jonathan Berr