Austerity policies involve reducing domestic wages and prices in order to restore competitiveness with other sectors and balance the government’s budget (Blyth, 2015). The idea is that, by efficiently controlling spending and revenues, austerity measures can help rebuild confidence and restore balance during a financial crisis involving debt. In general, austerity policies include three main courses of action: raising taxes to generate more money for the government; raising taxes while reducing “unnecessary” government programs; and lowering taxes and government spending (Hayes, 2025). In the following text there will be mention of World War I and World War II. There will also be examples of fascist practices and beliefs.
Framing and Perspective
Following the First World War, economic elites and the upper class attempted to suppress the lower working classes to shift income upward for the elite individuals. This gave rise to austerity policies (Mongiovi et al., 2024), which were then most famously adopted by fascists during the Second World War. Fascist ideologies generally support centralized authority under dictatorships and the violent suppression of the opposition, and are typically marked by nationalist sentiments and racist prejudice. Austerity measures were implemented to lower the prices of goods and cut social welfare spending. In other words, programs built to provide aid to citizens whose basic needs are not met were cut (Mattei & Ericksen, 2023). During that time, fascists in Europe wanted to use these policies to regulate the militant working class that was opposing the bourgeoisie. The rich and powerful classes in society often use both austerity and bailouts (providing financial aid to a failing business to prevent its collapse) as levers of control, providing the preferred course of action for governments currently facing financial difficulties.
Throughout history, when a ruling class has been unable to enforce austerity, it often resulted in fascist rule or a military takeover, which is the illegal seizure of government power by armed forces. One example of austerity failure leading to military takeover is Argentina in 1966 and 1976. The economic elite tried to impose austerity measures, but faced resistance. This resulted in instability and political chaos, leading to military interventions both times (Mattei & Ericksen, 2023).
Relevance
Political economists claim that austerity policies are a highly risky concept (e.g., Blyth, 2015). Supporting this argument is the rise of Hitler’s power in Germany, which also occurred due to austerity measures. Additionally, austerity measures intensified the Great Depression, a severe global economic crisis from 1929 until 1939. These measures paved the way for the Japanese military to seize control, which additionally supported the outbreak of the Second World War. Thus, the justifications for austerity are questionable. There is little data in the British context indicating that austerity policies led to lower costs for workers and higher rates of employment (Jump et al., 2025). Still, most countries that use this old economic theory often show results of low growth, more income inequality, wealth inequality and less job opportunities. Critics of austerity policies further argue that they disproportionately affect the poorer, more rural areas that rely on federal funding and that they damage growth in low- and middle-income countries (Labonté, 2015). Socially, austerity is linked to a less functional public health sector due to the minimization of the budget for healthcare, and a deterioration of social safety nets (programs providing financial aid) (Salguero, 2025). Austerity is also recognized as a socially uneven and gendered state, as cuts to the government budget affect women more because they are usually working in social areas and “care” jobs (Hall, 2017).
In the realm of politics, austerity is linked to electoral instability, which is characterised by a constant change of the political party in charge, a rise in populism (a political approach with anti-establishment, nationalist, or nativist tones), and a decline of the public’s confidence in institutions (Salguero, 2025).Fairer and more context-specific economic policy measures are needed. Many experts advocate austerity, arguing that cutting government spending can help the economy in the long run and lower budget deficits. Throughout history, however, it has come at high costs and with ambiguous efficacy. Nevertheless, whenever a financial crisis occurs, austerity policies are often suggested as a good solution for reducing government spending.
Keywords: Economy, GDP, Government Policies, Economic Instability, Unemployment, State Coercion, Debt, Discrimination
Connected Terms: Financial Literacy, Bourgeoisie, Unionization
References
Blyth, M. (2015). Austerity: The history of a dangerous idea. Oxford University Press.
Hall, S. M. (2017, March 7). Why Everyday Austerity is Gendered. The University of Manchester. https://blog.policy.manchester.ac.uk/posts/2017/03/gendered-austerity/
Hayes, A. (2025). Austerity measures: Understanding types and real-world examples. Investopedia.https://www.investopedia.com/terms/a/austerity.asp
Jump, R. C., Michell, J., Rabensteiner, T., & Norvaisa, E. (2025). Estimating the Effects of Austerity on the Labour Market: Evidence from Great Britain.
Labonté, R. (2015). Globalization and health. International Encyclopedia of the Social & Behavioral Sciences, 198–205. https://doi.org/10.1016/b978-0-08-097086-8.14022-x
Mattei, C. E., & Ericksen, S. (2023). The Capital Order: How economists invented austerity and paved the way to Fascism. Tantor Audio.
Mongiovi, B., Mongiovi, G., Maisano, C., Frost, A. A., Broder, D., Stein, S., Smith, D., Wilkinson, M., Kettlety, C., & Brenes, M. (2024, August 1). Austerity has always been a project to empower capital at the expense of workers. Jacobin. https://jacobin.com/2024/01/austerity-world-war-i-economic-policy-worker-power-capital
Salguero, R. A. F. (2025). Austerity in Crisis?: A Narrative Review of Its Economic, Social, and Political Effects in Times of Crisis. https://doi.org/10.2139/ssrn.5604090
