Austerity is not a novel tactic. Micawber recommended, though failed to implement it when he proclaimed in David Copperfield:
“Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.”.
With an austere regimen, including food discipline and exercise, the overweight human gone to seed can be restored his former efficient self. And it can also work for struggling countries. The problem is when the degenerative process has gone too far.
When planting a tree you wish to become self sufficient you make sure to give it a good start. A planting hole with boulders removed and some, but not too much nutrition for the first few months, is good. Watering is key and should be weekly and deep. If you water daily and feed it well, it will become accustomed to easily available surface water and nutrients and so it will not need to extend its roots deep into the ground. And all will be well provided you continue its cosseted lifestyle with periodic spraying against pests and fungi. It will be happy and productive but dependent on your continuous support. And if one day the source of water and nutrients fails, it may not survive. It roots will not be able to tap the water and nutrients located deep in the soil. And if pesticides are withdrawn its succulent unchallenged growth will provide easy fodder for the insects, browsers and fungi that descend upon it.
You may say this analogy is far fetched. But is it? Populations that have lost their self reliant ways as typified by the expression “you eat what you hunt” depend for their succour on past treasures (wealth accumulated by disciplined ancestors), or present resources (fortuitous mineral reserves) or future earnings (spending with debt to be borne by future generations). The extent of the problem can be gauged from the amount and duration of trade deficits. The trade deficit is an objective, timely (every month), accurate measurement of how well a country’s people, infrastructure and resources compete on the international stage. For some countries good luck goes a long way such as countries rich in mineral resources (Middle East, Australia, Canada, and Russia for natural gas). But for most countries the balance of trade (surplus or deficit) measures competitiveness. For a rapidly growing country a deficit may be expected in the early years of growth as the industrializing country develops its transport, communications and manufacturing infrastructures. But when mature countries such as the United States and Europe (Germany excepted) run continuous huge monthly trade deficits then this is the clearest indication they have lost their competitiveness to hungrier more agile competitors. Their deep roots have shriveled and they are dependent on continuing doses of synthetic nourishment from their central banks. In these circumstances a hefty dose of austerity not only won’t work, it can threaten the patient, as would sudden exercise the obese human.
The road to recovery must be slow and arduous – such countries will have to dismount their pedestals, tighten their belts, and learn to compete again for the manufacturing jobs which they bid quick good byes to in the happier days when service jobs seemed preferable. Now distant competition is doorstep competition and service jobs (excepting those requiring a physical presence such as construction, plumbing or hairdressing) can be delivered quickly and efficiently through the internet from anywhere in the world. Whole swaths of services from accounting, legal and medical research, to engineering, education and design services can now be contracted out to the best international competitor.
Remaining resources should be shepherded – the fracking bonanza must be frugally deployed, lest 30 years down the road we find ourselves where Britain is today with diminishing North Sea oil reserves and a steep hill to climb. And the yardstick for measuring recovery should be, as Micawber suggested, the net of our inflows and outflows i.e. our imports and exports as shown in the monthly balance of trade results, rather than unemployment, interest or inflation data, which respond to various stimuli but do not truly reflect the innate health and viability of the country.