Austerity is the political program of cutting public spending — officially to reduce government deficits. But what it actually does is convert things you could have without going through a bank into things you have to borrow. Student loan debt, medical debt, housing debt all expanded as public funding was cut. The need didn't disappear. A bank moved in. That conversion — from public supply to private debt — is the mechanism.

Economics · Politics

What Is Austerity?

Q: Who benefits from austerity?

The beneficiaries are whoever receives the debt payments on things that move from public supply to private borrowing. When public university funding is cut and students take loans, banks collect interest on $1.7 trillion indefinitely. When public housing is defunded and people can't buy homes, financial firms profit from rents and mortgage interest. In the 2010 Greek bailout, a 2013 analysis found approximately 77% of the loans went directly to private creditors — primarily French and German banks — who held Greek government bonds. The mechanism consistently protects creditors.

Q: How is this different from just "running out of money"?

In March 2020, the US found $2.2 trillion in sixteen days for COVID relief; total spending reached roughly $5-6 trillion over the following year. In 2008, the Federal Reserve committed $7.77 trillion to rescue the financial system. The "we can't afford it" argument isn't a description of how much money exists. It's a description of what the money gets created for — and that has been consistent for forty years: banks and corporations get a yes; public services get a no.

There’s a specific feeling that comes with certain kinds of debt. Not the feeling of having bought something you wanted. The feeling of having borrowed money just to get something you couldn’t live without — a degree, a procedure, a place to sleep. The feeling that goes with it: this doesn’t seem right. That feeling is correct.

By Left Diary · July 2, 2026 · 12 min read

What “Free” Actually Means

Here’s something weird, if you stop to think about it.

A public library exists. You can walk in and take any book home. You don’t prove you can pay for it. You don’t owe anything when you leave. Nobody checks your credit. Nobody profits from your use of it. It just works — because somewhere, someone decided it should work that way.

That arrangement — the thing you can have without permission, without debt, without a bank deciding whether you qualify — used to describe a lot more than the library.

Public school through twelfth grade. The VA. Social Security. The GI Bill, which made college accessible to an entire generation without a single loan. The University of California, which charged California residents no tuition at all until 1970 — not because college wasn’t worth anything, but because there was a deliberate political decision that learning should work like the library. That you shouldn’t need to be creditworthy to do it.

What all of these share, when they work: you can use them without going to a bank first. No one approves your application. No one collects interest afterward. The thing just exists, and you can have it.

That’s what independence looks like in an economy. Not having more money. Having things you need that don’t require money. Things that exist outside the market, where no one can tell you no.

The Conversion

Something happened to that arrangement. It didn’t happen all at once. It wasn’t a theft — nothing was obviously taken. It was a series of decisions about where things should live: inside the market, or outside it.

Ronald Reagan, as governor of California, imposed the first tuition at the UC system in 1970, arguing explicitly that education shouldn’t be “free.” That was a position. Not an economic law. Over the following decades, public funding for universities fell from covering roughly three-quarters of costs to roughly a third. The university that existed outside the market moved inside it. Total US student loan debt: $100 billion in 1993. $1.7 trillion today. The need for education didn’t change. The public supply shrank. Banks moved in. Where they now stand between you and what you need, collecting interest. The cuts happened once. The debt doesn’t reverse.

Medical debt is the leading cause of personal bankruptcy in the United States. Countries with universal public healthcare don’t have this category — medicine lives in a different place in their economies. Here, it’s inside the market. When the bill arrives and you can’t pay, you borrow. When you can’t borrow, it goes to collections. None of this is a natural law. It’s a location: where does this thing live?

Public housing: deliberately reduced since the 1970s. Section 8 vouchers: chronically underfunded, waiting lists years long. Pensions: replaced by 401(k)s that require you to have income to invest, to pick the right funds, to not touch them early. The pension existed outside the market. The 401(k) is inside it. In each case: the thing that asked nothing of you became the thing that requires your creditworthiness, your monthly payment, your continued cooperation with whoever now stands between you and it.

This is what austerity actually does. Governments that issue their own currency create money when they spend it — they don’t save it. When public funding is cut, the money doesn’t go into a vault for later. The need just has to be met somewhere else, by some other institution, on some other terms. Those terms are: interest, creditworthiness, and a bank that profits from your need permanently. The public thing gets cut once. The private debt is forever.

That conversion — from the thing you could have without asking to the thing you borrow — is the mechanism. Not the side effect.

Where the Money Goes

And yet. The money does exist.

In March 2020, the US government signed $2.2 trillion into law sixteen days after a pandemic was declared. Over the following year, total COVID spending reached roughly $5–6 trillion. In 2008, the Federal Reserve committed $7.77 trillion to rescue the financial system. (Bloomberg, “Secret Fed Loans Gave Banks $13 Billion Undisclosed to Congress”, November 2011) Nobody said we couldn’t afford it. Nobody convened a debt commission. It appeared, because someone decided it should.

The 2010 Greek bailout is worth following, because the money trail is unusually clear. The IMF and European governments lent Greece €110 billion — officially, to rescue a collapsing country. The condition: deep cuts to pensions, wages, and public services. A 2013 analysis found that approximately 77% of those loans went not to fund the Greek state, but directly to private creditors — primarily French and German banks that held Greek government bonds. (European School of Management and Technology, analysis of Greek bailout fund flows, 2013) The Greek population bore the cost. The bank balance sheets were protected. Follow the money and see what was actually rescued.

The main academic argument for austerity — that government debt above a certain level causes economic collapse — turned out to contain a spreadsheet error. A graduate student found it trying to replicate the paper for a class assignment. The corrected numbers made the threshold disappear. (Herndon, Ash, and Pollin, “Does High Public Debt Consistently Stifle Economic Growth?”, 2013) The IMF later published papers acknowledging that austerity programs caused far more economic damage than predicted, and that on average they were followed by drops in output, not growth. (Blanchard and Leigh, IMF WP/13/1, 2013; Ostry, Loungani, and Furceri, Finance & Development, 2016) The evidence didn’t reverse the cuts. It rarely does.

None of this is surprising once you understand what austerity is for. The argument was never really about whether the money existed. It was about who it should flow to, and through whom, and on what terms.

The Pattern Has a Name

The colonial hut tax worked this way too. Free people who had everything they needed were converted into dependent laborers by creating a need — colonial currency — that could only be met by entering the colonial economy. They weren’t robbed outright. They were made dependent. The mechanism was precise: don’t take what people have. Create a requirement they can only meet on your terms.

Austerity does this in reverse. It doesn’t create a new need. It removes the public supply of an existing one. The need remains — you still need to learn, to heal, to sleep somewhere. You now have to meet it through the market. Where you need permission. Where someone profits from the fact that you need the thing. Where, if you’re not creditworthy, you simply don’t get it.

Manufacturing dependency where none existed before. The instrument is different. The function is identical.

This is why “we can’t afford it” is such a strange thing for a government to say, once you’ve watched $7.77 trillion appear for banks and $6 trillion appear for a pandemic. It isn’t a description of how much money exists. It’s a consistent answer to a consistent question: who gets things outside the market, and who has to borrow? And for forty years the answer has been the same. The banks get the yes. You get the loan.

Once you see the pattern, the framing shifts. “Fiscal responsibility” stops sounding like a description of how economies work and starts sounding like a description of whose interests get protected when the budget is written. The question isn’t whether we can afford Medicare for All, or free public university, or housing that doesn’t cost more than you earn. The question is whether those things should exist outside the market — where no one can say no to you — or inside it, where someone always can. Austerity is the name for the choice to keep moving them in.

Common Questions

Frequently Asked Questions

What is austerity, actually?

Austerity is the political program of cutting public spending — officially to reduce deficits. But what it actually does is convert things you could have without going through a bank into things you have to borrow. The need doesn’t disappear. A bank moves in. That conversion — from public supply to private debt — is the mechanism, not the side effect.

If cutting spending "saves money," where does the money go?

Governments that issue their own currency create money when they spend it — they don’t save it the way a household does. When public university funding is cut, the money doesn’t go into a vault. The students still need to learn. The learning gets funded with loans. What changes isn’t how much money exists — it’s whether the thing you need exists inside the market or outside it. Inside the market, you need permission. Outside it, you don’t.

Who benefits from austerity?

Whoever collects the debt payments on things that move from public supply to private borrowing. When public university funding is cut and students take loans, banks collect interest on $1.7 trillion indefinitely. When public housing is defunded, financial firms profit from rents and mortgage interest. In the 2010 Greek bailout, a 2013 analysis found approximately 77% of the loans went directly to private creditors — primarily French and German banks. The mechanism consistently protects creditors.

How is this different from just "running out of money"?

In March 2020, the US found $2.2 trillion in sixteen days. Total COVID spending reached roughly $5–6 trillion over twelve months. In 2008, the Federal Reserve committed $7.77 trillion to rescue the financial system. “We can’t afford it” isn’t a description of how much money exists. It’s a description of what the money gets created for. And that has been consistent for forty years: banks and corporations get a yes, public services get a no.

Why did student loan debt grow so dramatically?

The University of California charged no tuition until 1970. Federal and state funding for public universities covered roughly three-quarters of costs through the mid-1970s; today it covers roughly a third. Total US student loan debt: $100 billion in 1993, $1.7 trillion today. The need for education didn’t change. The public supply shrank. The bank moved in. That’s the whole story.

Go Deeper

Austerity: The History of a Dangerous Idea — Mark Blyth (2013) — Traces austerity from 18th-century liberal theory to the eurozone crisis, documenting who the policy consistently protects — and finding no historical evidence that cutting public spending generates growth.
"Neoliberalism: Oversold?" — Ostry, Loungani & Furceri, IMF (2016) — Published in the IMF's own magazine: the institution that designed the austerity programs documents that they raised unemployment and inequality while producing drops in output, not growth.
How Do Banks Create Money Out of Nothing? — If money is created when governments and banks decide to spend it, the question "can we afford it" means something different than it sounds. This is the foundation the austerity argument rests on — and it doesn't hold.
Why Did Colonizers Tax Africans? — The hut tax and austerity use the same mechanism: convert something people had outside the market into something that requires entering it. The goal in both cases is dependency, not revenue.
How Did People Survive Before Capitalism? — Before the commons were enclosed, people met most of their needs outside the market. The history of capitalism is largely the history of moving those needs inside it.

Who Gets to Be Independent

If something that used to be public — a university, a hospital, a pension — is converted into a market product, you now need permission to have it. You need creditworthiness. You need to service the debt, indefinitely. The thing that existed outside anyone’s control is now inside someone’s balance sheet.

Social Security is described as being in “crisis.” The proposed solution is always some version of privatization — your retirement inside the market, with fees, with fund choices, with no guarantee. The public pension that asked nothing of you would become an account that a financial firm profits from. The script is identical every time: the public thing gets framed as unsustainable, gets moved inside the market, and the need remains — now with a bank between you and it.

Once you see that the money appears when banks need it and doesn’t when you do, “we can’t afford it” becomes very hard to say with a straight face. It stops being a fact about money. It becomes a fact about power — about who decides what should exist outside the market, and who should have to borrow. That decision is being made constantly, in every budget, and it is not a neutral one.