Effects of Austerity Measures on Depressed Economy - Essay Example

Effects of Austerity Measures on Depressed economy Many governments have been facing critical moments of economic difficulties due to the ongoing global financial stability. Most of the economies have been struggling to revive in reiteration to the impacts of financial crunch that frightens to crumble the victim economy. However, some of the economic meltdown witnessed in particular countries involve corrupt actions accomplished by particular members of the victim countries. Austerity measures have been the viable strategy employed by many economies in curbing as well as avoiding generative effects that threaten the economies. Austerity measures refer to actions by the government to regulate particular sectors of the economy in order to protect the economy from the risks of dissolution and liquidation. Austerity measures carries along positive implications that can work towards attaining the desired goals. There are also certain defective implications that lines along with austerity measures that when unchecked can lead to an automatic fall of an economy. Adoption of austerity measures in a depressed economy will call for the reduction of government officials and retrenchment of leaders working in particular areas of the economic back up in order to cut the cost of spending by the government. Reducing the number of incumbents working in the government offices will reduce the possibilities of tax increase on items circulating in the country’s economy. Such tax cuts will strengthen the trust of businesspersons in the economy thereby encouraging further investment, continued operation, and provision of goods and services at relative prices. Implementation of austerity techniques such as reduction in the lending rates from bank and other financial intuitions may assist in reviving a solvent economy. Low interests lending rates and close government participation has played a great role in attracting foreign and local investors as well as traders. Low lending rates will also improve the number of citizens engaging in mortgages to construct impressive housing facilities. In addition, austerity measures as can be adopted by the government of a depressed economy leads to reduction in the returns of bank deposits and money market instruments. The tax increment as adopted by the Greece government with intentions of balancing the countries financial deficit. The government’s plan of cutting the pension benefits is a clear show of the struggle within the government to accumulate finances for paying for balancing of the country’s economic stability. Austerity plans to cut on government spending and create employment opportunities as adopted by the Obama administration offers appropriate groundwork for rehabilitation of the economy. Cutting of government spending would greatly support in the payment of national debt due to controlled spending of federal taxes. Creating employment opportunities for American citizens also meant to increase productivity of the economy, which in turn assisted in the payment of national debt. Austerity measures can at times work as the avenues for ensuring equality among the dwellers in an economy. When prices of goods and services get improved through the implementation of the austerity measures both the capitalists and lower class members of the society could exhibit similar potential in the purchasing capability. In the views of International Labor Office (13), the developed countries enjoy great advantages on setting austerity measures with little effect to the entire economy due to the presence of resources by which to mitigate negative effects of the development. It is vital to note that implementation of certain austerity measures has negative effects to the economy of the nation and to the citizens in general. It is evident that cutting government spending that involves sacking and closure of certain offices leads to loss of government jobs thereby resulting to significant unemployment, which then threats the security status of the country. In addition, cutting the rate of taxes collected by the government will result to low income margins that will leave the government with little revenue to sponsor community development projects. Reduction of taxes by the government impacts negatively on government revenues and may condition the government to continue with borrowing of debts thereby increase national deficits instead of reducing. Donadio and Kinsantonis reports that the austerity measures adopted by the Greece government including cutting the pension benefits had negative impacts on the economic stability of the individual beneficiaries of the pension scheme. Furthermore, Donadio and Kinsantonis demonstrate that the move by the Greece government to adopt austerity measures proposing for increment in tax margins and freeze in labor wages have great effects on the financial stability of the families and households in Greece. Introduction of various and steep austerity measures in Greece have resulted into great confusion among the citizens of the country. Labor unions in Greece have also been depicted conducting strikes of workers in show of discontent with the policy passed by the community. The government also resorted for the introduction of new property tax that charged large portion of income due to the citizens. High level of taxation and expansive areas of taxation have left many citizens in a state of exploitation by the government (BBC News). The austerity measure seeks to tax even incomes that are above $6800. Government’s plans of designing pension cut of about $ 1600 per month and $1400 per month on retirees below the average retiring age of 60 years. The austerity measures designated at cutting the pension income for the retired employees leaves the households and particularly the aged in a state of bankruptcy and poverty. The plans of Obama administration on cutting government spending also faced series of blames considering the fact that many people were to be left unemployed. In addition, cutting of government expenditure also meant erosion of public education, health care subsidies offered by the government and an end of social security program. Moreover, austerity measures of cutting government spending would tamper with protection of the environment and dilapidation of national food reserve. States and cities in the US are never allowed to operate under budget deficit. With the unfavorable cost of living and poor economic performance, the state and city governments have been compelled to escalate the charges of their operations and taxes. The increment in the regional taxes has led to the exodus of people to more favorable regions thus leaving the original settlement areas in a state of little income that deteriorates the development programs. Austerity measures therefore, leads to natural unemployment in the economy thereby resulting to fall in the revenues for federal and state governments to supervise development projects in their regions of operation. Austerity measures also have the capabilities of reducing intergovernmental staff transfer within the cities thereby leaving the cities in downgraded state. In conclusion, austerity measures refer to the strategies established and highlighted to save an economy from inevitable detrimental factors. Austerity measures have posed positive implications as well as negative implications to various countries that exercise the strategies. It is well evident that most economies have been considering reduction in the government spending as the most viable way of managing a depressed and crunching economy. Creation of employment opportunities has also been a common practice in many economies that face depression. Furthermore, increase and decrease of taxes have been very common games applied circumstantially to determine the best way of achieving maximum economic performance. Work cited Lerner, Michael. Austerity as Spiritual Depression: The Current Economic Assault on the Middle Class. Web, 2011. November 16, 2011 from http://www.tikkun.org/nextgen/austerity-as-spiritual-depression-the-current-economic-assault-on-the-middle-class BBC News. Italy crisis: Senate adopts austerity law. Web, 2011. November 16, 2011 http://www.bbc.co.uk/news/world-europe-15688755 BBC News. Greek government austerity measures. Web, 2011. November 16, 2011 from http://www.bbc.co.uk/news/business-13940431 Gliksman, Ben. The Negative Effect Austerity Measures May Have on Our Cities. Web, 2010. November 16, 2011 from http://thebroadermarket.com/post/845620241/the-negative-effect-austerity-measures-may-have-on-our Donadio, Rachel & Kitsantonis, Niki. New Round of Measures for Austerity in Greece. Web, 2011. November 16, 2011 from http://www.nytimes.com/2011/09/22/world/europe/greece-sets-new-austerity-measures.html?_r=1 Dominion Newsletter. Riding the Market Roller Coaster: A time to buy? Web, 2011. November 16, 2011 from http://www.dominion-funds.com/Documents/DFML%20Newsletters/MarketRollerCoaster/DFML_Market_Roller_Coaster_0811_pv.pdf Trade and Development Report 2010. United Nations. Read More