“Recessions can hurt, but austerity kills.” That’s the message of authors David Stuckler and Sanjay Basu in The Body Economic: Why Austerity Kills. Contrary to what many economists have claimed in the past, battling recession by cutting back does more harm than good, especially in terms of human health and lives. Drawing on both historical and contemporary data, they compare different nations’ responses to recession – in particular, the most recent one – to show that the strict austerity policies adopted by many can have devastating and long-lasting effects on both a nation’s economic well-being as well as the physical health of its people.
Harsh austerity measures imposed on Greece in recent years have taken their toll, with a 52 percent increase in HIV, a doubling of suicide rates, increases in homicides and a return of malaria. As a point of comparison, the authors also take a look at Iceland. The nation was in danger of national bankruptcy in 2008 following the failure of its principal banks and a 90 percent drop in its stock market. Quoting The Economist, the authors note that the banking collapse in Iceland was “the biggest relative to the size of an economy that any country has ever suffered.” Health officials at the time expressed concern that job losses and home foreclosures would result in an increase in depression, suicides and heart attacks. In response, the Icelandic Public Health Institute urged local journalists to increase the number of positive stories in their papers as a preventive measure.
It’s worth noting that immediately prior to the 2007 recession in the United States, Iceland sat at number five on the world’s richest country list; its three top banks were considered to be among the best investment trusts worldwide. In 2008, “it all went down the drain.”
Iceland eventually turned to the International Monetary fund for a bailout. The proposed cost? The IMF recommended across the board cuts in services, including a 30 percent reduction in public health care. “Incredibly,” the authors note, the IMF considered health care “a ‘luxury good.’”
The move gave rise to a popular joke:
What’s the difference between the IMF and a vampire?
One stops sucking your blood after you’ve died.
Clearly austerity measures in Iceland would have attracted few local fans.
To its credit, according to Stuckler and Basu, the Icelandic government decided to base its policies on data rather than speculation. In contrast:
The IMF economists had assumed, without hard data… that government spending would shrink the economy. Hence cutting budgets would boost growth. But their assumption was made without … real data. The IMF had also assumed that all forms of government spending were the same—that spending on elementary schools would have the same economic impact as spending on the army.
Since that time, Stuckler and Basu report, the IMF has reversed its policy claiming, instead, that austerity slows down economies, deepens unemployment and puts a damper on investor confidence.
The Body Economic goes against much currently accepted wisdom. A huge national debt is unsustainable and retards economic growth, many people might say. Recently, however, some economists are rethinking that wisdom. Debt makes it harder to borrow more money, but it doesn’t mean that you can’t increase your earnings while you’re in debt. Anyone with a credit card might appreciate that. Being over your debt limit – in itself – that doesn’t stop you from getting a better job. In other words, your earnings potential will increase independently of how much money you owe. Earning more money, however, depends on jobs and strict austerity measures don’t create them. And, if you’re too sick to work, having a job won’t matter much anyway. What’s needed for individuals and nations, if Stuckler and Basu are to be believed, is a bracing stimulus tonic to get both of them back on their feet. FBN