It seems from rational agent point of view that austerity in any moment of crisis is the sole solution. Yes, but!
First we should make clear that anti-cyclic strategies proposed by Keynesians and like sounds good, but they always lie on one of two false premises and sometimes even on both of them:
- Anti-cyclic funding come from “others people money”.
- There is a crisis, but despite there are available funds.
I find second premise extremely interesting. Namely: should there some funds exist, then we would not feel such situation as critical. Situation becomes critical exactly for the reason that there aren’t any resources available any more. And exactly because anti-cyclic propagandists know (bot do not admit) they have no available sources they rely or invent others people money.
To stress again thus, I am not proclaiming Keynesian economy with a question about austerity as the strategy in crisis.
But then if neither austerity nor anti-cyclic investments in crisis are proper strategies, what could be a positive answer? As so often in similar conundrums solution lies in stepping back from high economic theories to simple kitchen life and basic evolutionary insights.
The most common crisis experienced by anyone of us is illness. When we are ill we should not and we do not eat as much as when there is no crisis. Austerity comes by nature in illness, at least for some time.
Let us look at another type of crisis that does not come from lack of resources but often from overabundance of them. If there is a crisis in a class, there should be some measures taken to prevent entropy (entropy= children are feeling too good) among children in class. Higher entropy in the class means metaphorically and sometimes even literally that there is too much food, too much heat. Measures introducing some kind of austerity are necessary in such cases, most often in the form of limitation of freedom (reducing entropy).
In nature if there is lack of food or lack of heat, animals and plants recalculate their metabolism plan and adjust output with predicted input either with different types of hibernation or with some other induced deprivation.
Austerity and timing
These examples (and there could be many more of them) in fact make more transparent perhaps the most important issue about austerity: timing. If being ill we do not eat too long, we die; if measures in the class take too long, children lose their motivation; if the lack of heat takes too long, we do not wake up from hibernation. Even more: after a timed austerity there is an immediate period of amplified need for beforehand restricted food or freedom or heat. Even more: it is well known that after the pain (austerity) the body appreciate additional resource even more than beforehand; the body likes so much more the source of additional resource.
Another consequence of austerity is that affected body needs less resources to recuperate since perceived threshold gets reduced with austerity as well. A trick of austerity is thus not so much the austerity itself but lower expectations after the crisis. In each of three described cases affected agents get satisfaction with lower quantity of food, lower level of freedom and for instance with lower standard of living than before the crisis. This comes by nature, by forces explained by evolutionary theory.
That is why traditional rationality of agents fail, as Daniel Kahneman and other behavioural economists explains so elaborately. But following my reasoning on clearly sees that evolutionary strategy regarding austerity follows clear rationality. It is clearly higher or at least different rationality from the one proclaimed by classical liberal economists. Agents clearly do not calculate marginal utility as narrowly as Ludwig Von Mises describes, but that does not mean that they behave contrary to what liberal economy proclaims. Rationality of classical liberal economists is a part of wider evolutionary rationality while on the other hand Keynesian or Piketty “rationality” is clearly not.
One of important additional layers of evolutionary economy that is at the same time represented in kitchen-logic and homonism is time dimension. There are many others as well, but time dimension is extremely important ingredient in austerity questions for quite obvious reasons. In all crisis cases austerity should be first step, but always with acknowledgement of proper timing when austerity should be reduced and finally abandoned.
I would dare to claim that lack of clear view on evolutionary dimension of crisis prevents almost all economies and political leaders to face crisis properly and to communicate it and solutions clearly. Recent example at least in Europe presented austerity as a goal with unlimited timing. Such notion is highly destructive since people are versatile in kitchen logic and they know even if they do not know how to articulate it: permanent austerity is adaptation to death.