What is an Austerity Program?

A modern economy cannot sustain itself without a few adjustments along the way. One drastic form of economic adjustment can arrive in the form of extreme cutbacks in government spending, especially on social programs and essential services. Such a severe and rigid economic policy is known as an austerity program. An austerity program is often implemented immediately after a costly war, or during times when a country's debts far exceed its potential revenue through taxation and the sale of exported goods.

Many economists view an austerity program as more of a threat than an actual solution to an economic crisis or downturn. Few political leaders look forward to cutting back on essential services, critical infrastructure repairs and social programs for the working class or poor. The idea is to tighten government spending for a short period of time until the country's debts have been largely repaid. Living under the strictest austerity programs for an extended period of time can lead to civil unrest or even a military coup.

Quite often, the implementation of an austerity program comes after a cycle of excessive government spending. This form of belt tightening may be strictly necessary to restore balance to the economy, or it may be more politically motivated. One political party might impose an austerity program in order to cast doubts on the previous party's fiscal policies. Cutting back on funding for the arts or social welfare programs may be preferable to cutting back on military spending, for example.

A country's creditors may also demand that its leaders implement an austerity program before credit can be restored. The same philosophy also holds true for many large corporations who must adopt their own austerity programs in order to qualify for government bailouts or bank loans. During difficult economic times, many organizations and companies must adopt an austerity program of their own in order to survive.

Critics of this approach suggest that the working class and poor bear most of the brunt of government cutbacks in spending, and tax-paying citizens are often forced to repay wartime debts incurred by former oppressors. A number of countries who have implemented austerity programs in recent years have taken steps to stabilize prices or otherwise protect their most vulnerable citizens. By its very nature, however, an austerity program calls for severe sacrifices and a much more frugal way of life until economic conditions improve.