What does the financial industry believe they have to gain from austerity policy?

Professor Wolff, In the light of our new political reality in the United States I think it may be safe to say that austerity in forms many of us could not have imagined is coming in the very near future. I am aware that such policies do not have any real effect on relieving national debt and that they drastically damage the quality of services that the working class can afford lowering the standard of living across the board. However I do not understand what the financial industry views as the overall market benefit to these measures. Could you please explain what they believe they have to gain from cutting spending on critical government services?

Official response from submitted

The financial industry organizes, manages and itself invests in government debt; that is the industry depends on income from the loans it makes to governments (local, state and federal). It thus is vitally interested in the capacity of governments to pay interest on and retire the principal amounts of their debts. Austerity is a set of government policies aimed to save the government from spending on hiring public employees, providing government services to the public, etc. so that the money thereby saved becomes available to the government to pay interest upon and pay back previous loans to the government. The fear lying behind this is the risk that if austerity is not practiced now, government debts will ratchet up so high that the mass of the people will eventually refuse to forego mass public services in order to service the government's debts: in other words, mass political pressure could force the government to default and not pay the financial industry and its other creditors.


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  • responded with submitted 2016-12-26 22:22:05 -0500
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    Ask Prof. Wolff: What does the financial industry believe they have to gain from austerity policy?
  • published this page in Ask Prof. Wolff 2016-12-26 05:23:35 -0500

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