You’ve probably heard the analogy that government budgets are like a household — it cannot spend more than it earns.
Almost every year, neoliberal politicians, economists and commentators admonish the public to “tighten our belts” to pay back government debt, cut services, sack public servants, increase tax breaks for corporations. This is austerity.
This analogy is an enormous lie.
Austerity is not a mathematical budgeting necessity. It is a political weapon used by the neoliberal guardians of the billionaire class.
Demands for cuts to services to pay debt and fund tax cuts has nothing to do with balancing the budget and everything to do with accumulating power — specifically, taking power away from everyday people and handing it to the ultra-rich owners of capital.
Austerity is a budgeting and economic tool designed to discipline the working class and insulate capital accumulation from democratic interference.
The capital order wants to make you poor and keep you poor, and to understand why, you need to understand the social order that austerity protects.
The “capitalism is natural” myth
Highschools and universities teach all of us that that capitalism is the natural state of humanity, a spontaneous result of human nature. In fact, it is so embedded as the default state that capitalism is almost never mentioned — instead we hear about markets and market economics.
Of course, capitalism is not the natural state of humanity. Historically capitalism became the global order through constant violent enforcement — the continuous resistance, revolts and uprisings against the imposition of capitalism has been mostly erased in mainstream history and economics.
The current social order under capitalism relies on two pillars: wage labour and private investment.
The majority of people have no option but to go sell our capacity to work in return for a wage. We are forced to do this under threat of immiseration, poverty and destitution — and in many places around the world today and throughout history, under threat of physical violence. Capitalism as a system requires that the vast majority of people must be so desperate as to take whatever job is offered.
Meanwhile, a tiny ultra-rich elite controls where resources are invested across our society. While libertarians and right-wing pundits complain about the state, a handful of global mega-corporations like Walmart, Shell, Amazon and Berkshire Hathaway have annual revenues bigger than over 150 countries. There is no democracy in how these companies make decisions that powerfully shape local, state and national economies.
Private investment removes the ability and right for people to decide how our shared, common endowments — natural resources like food, water, minerals — and our human capacities are spent. Ultra-wealthy corporate executives and billionaires instead can unilaterally decide to spend vast amounts of time and resources into building super-yachts, space tourism rockets and luxury apartment buildings — distorting economies and corrupting politics.
Austerity is the mechanism that maintains this desperation and private control.
When workers gain bargaining power, when you demand better wages or social safety nets, the billionaires panic and deploy the safeguards built into the economic system.
The corporate executives and billionaires know that if workers and everyday people did achieve real democratic or workplace power, they would never accept a system that keeps handing over the vast majority of wealth and profits to the ultra-rich.
Therefore, the state steps in to protect the capital order.
The safeguards for capital
Austerity functions through three interlocking systems: fiscal, monetary, and industrial. Corporations and governments use all of them in order to protect the power and wealth of the billionaires.
Fiscal safeguards
Fiscal policy is the technical term for taxing and spending. The fiscal safeguard is used to protect the system through cuts to spending on social programs and welfare.
There’s lots of different manifestations and coded language for this — fiscal sustainability, budget rules, budget surpluses, etc. all of which are designed to hide and justify austerity.
For example, the International Monetary Fund recently tried to bully Australia to adopt stricter “fiscal anchors” to manage the budget deficits. The IMF explicitly called for the government to cut funding for the National Disability Insurance Scheme and aged care.
By trying to enforce these fiscal rules, the capital order is prioritising the rights of ultra-wealthy creditors and private bondholders over the needs of citizens.
When governments cut public funding for healthcare, education, and housing, it forces you to turn to the market to survive. The government “safety net” is degraded to the maximum extent to create conditions so awful, so unliveable that you are forced to accept what the corporations provide, whether it is enshittified services or Uberised, AI-ruined, unsafe jobs.
Critically, these fiscal safeguards help make the violence of austerity appear as a neutral, rational economic response to debt and the market.
Monetary safeguards
The second safeguard is monetary policy. Monetary policy is interest rates. We are told increasing or decreasing interest rates is used to “fight” or manage inflation. In fact, raising interest rates is used to smash unions and workers’ bargaining power.
The economic and financial models used by central banks like the Reserve Bank of Australia or the Federal Reserve in the USA assume that the inflationary problems are due to workers “misbehaving” by asking for too much money in wages. Their secondary (but equally important) mission is to protect the value of money of creditors (the people who lend money).
The goal of the central banks therefore is to increase interests rates is to “cool” the economy by increasing unemployment.
Recent data from Australia shows that central banks want unemployment to rise. Their ideology states that higher unemployment reduces “upward pressure on inflation” because it reduces the discretionary amount of money workers have to spend. The Reserve Bank and other central banks therefore purposely create or engineer joblessness.
Industrial safeguards
The industrial safeguard of austerity is, simply, reducing the ability for unions and workers to bargain.
Unlike fiscal cuts to social spending or monetary interest rate hikes, industrial austerity functions through the deregulation (think Uberisation of traditionally secure jobs), privatising public assets and services (think the privatisation of Telstra or electricity which are then followed by labour hire and mass redundancies). All of these are intended to reduce the bargaining power of unions and workers and enforce precariousness and job insecurity.
The second element is by attacking unions and the laws that govern or legitimise unions. By attacking unions and removing legal protections for industrial action and strikes, the capital order keeps workers desperate and immiserated enough to accept low wages and minimal working conditions. Ultimately, the goal is to force people to work on terms beneficial to the billionaire investor class. This further protects the capital order from democratic demands.
Within the Global North, there has also been a deliberate deindustrialisation. The destruction of organised labour through automation and transfer of manufacturing to the Global South (especially China and Mexico). This has structurally weakened the union movements of the Global North.
It is almost impossible to organise your way out of austerity when the industrial base of workers has had their jobs destroyed by the CEOs and bankers.
Automation and robotisation has destroyed the industrial working class in Australia, US and other Global North companies. And now LLMs and artificial intelligence are coming to destroy the security of white-collar jobs. AI reinforces the neoliberal order by providing powerful new tools for CEOs and billionaires to weaken workers’ power, and siphon public wealth to the techno-feudal lords.
AI and other algorithmic systems directly expand austerity by automating the reduction of social safety nets — for example Robodebt. Governments are increasingly using algorithmic systems to “manage” welfare systems in order to impose austerity.
In the broader economy, AI tools are deployed by management to standardise and deskill “knowledge work”. Making employees interchangeable, highly controllable, and financially containable is the point.
The “violence inherent in the system”
In Global North countries like Australia and the UK we like to pretend we are immune to state violence. As we have seen in recent times, spectacularly in the US (with ICE street murders) but also in Australia and the UK, the violence is still there.
The most obvious form of state violence to protect the capital order is the overt coercive violence of the state. Especially with the crisis of the status quo — the increasing failure of neoliberalism to ensure safety, health, education and prevent widespread poverty for the general population.
The coercive violence can range from corporate “cancel culture” to the criminalisation of protests and restrictions on free speech. Almost every country in the Global North has anti-protest laws or restrictive “free speech zones”. The goal is to protect market freedoms from democracy by constraining and limiting democracy.
The escalation of coercive violence is the militarisation of the police — again this is spectacularly on display in the US. However, this militarisation ramped up immediately after 9-11, and the explosive expansion of the security state to “manage” domestic unrest caused by economic hardship.
The capital order uses the technological surveillance capacity developed for the War on Terror — metadata mining, facial recognition software, and device hacking — to monitor democracy groups, environmental groups and anti-austerity groups. Security agencies also infiltrate those groups in order to disrupt them. It is almost entirely climate or left groups that are monitored and infiltrated by the state security agencies.
Beyond the overt coercive violence, there is also the silent compulsion of economic violence. This coercion is the violence of hunger, homelessness, poverty, and preventable illness. Unlike militarised police on the streets, economic violence appears “invisible” and “clean”.
It is enforced through seemingly neutral market forces and legal contracts and manifests through the deliberate use of unemployment and poverty to deepen peoples’ dependence on the market. Economic violence is designed to keep workers precarious, anxious, and desperate enough to accept exploitative, low-wage conditions just to afford basic human needs like housing and healthcare. And while it keeps us insecure and anxious, it uses billions in advertising and social media to manufacture desires for consumer goods (even enshittified ones) to keep people from imagining any alternative.
When the richest countries on earth have children living in poverty or pensioners experiencing homelessness, this is economic compulsion.
The enforcers of austerity
The “bond vigilantes” are austerity’s primary enforcers of neoliberal discipline. These bond vigilantes are investors in the debt issued by governments, i.e. when states borrow money, it is the bond market investors that lend the money.
Their role is to police state spending and ensure that fiscal policy remains favourable to creditors, effectively overriding democratic mandates.
Bond markets are the opposite of “neutral”, non-political markets. In fact, they are highly political. The major investors have absolute class and financial incentives to attempt to stop anything a government might do that reduces the wealth of those investors.
In practice, this means that bond investors will increase the cost of debt (charge higher interest rates) for governments viewed as “left wing”.
Social democratic and left-wing governments are especially vulnerable to bond vigilantes and investor coercion. This is because the centre-left/social democratic politicians fear face a “credibility gap” with the bond markets. Most governments rely in very large part on global bond markets to raise funds for government spending — which entrenches the power of the financial elite and restricts the possibility of alternative de-financialised lending models.
Financial elites view social-democratic governments with suspicion and hostility. Their fear is that the governments will prioritise social services and workers over debt repayment. To avoid higher financing costs, threats of capital flight and to prove they are “responsible economic managers”, social democratic governments often impose austerity to maintain access to borrowing.
These financial elites and bond vigilantes may sound like a cabal of billionaires (and the Epstein Files definitely provides bountiful evidence of this) — the point of highlighting their role is to focus on the self-reinforcing system where the individuals, however personally odious, immoral or evil, are as much functionaries of capitalism as its masters.
The household budget analogy is a crucial lie used by neoliberalism, a political fraud dressed up as “common sense” to perpetuate austerity and protect profits.
We must stop accepting the lie that there is “no money” for public services. Governments can always find money for war, bank bailouts, billionaire tax cuts and corporate subsidies. The scarcity is artificial.
The household budget analogy is a lie because a family cannot print money to pay for groceries. A family cannot set the interest rates on their own mortgage. A family does not build and operate tanks or fighter-jets.
When a politician tells you the government must “live within its means” they are hiding the fact that the government defines what those means are.
While this blog post is fairly pessimistic about the role of the state, we must also remember that it is a site of struggle. Workers and everyday people can win concessions from austerity and neoliberalism. Medicare, the NDIS, the minimum wage, the right to disconnect are all ways that we have won. The state and corporations are becoming increasingly militaristic and coercive, but it still must ensure some level of consent to maintain order.
Austerity is very necessary, very rational pre-requisite for the protection of profit. It keeps us anxious, precarious, and obedient. Understanding this is a vital step in escaping the trap that tells us there is no alternative.