Austerity makes countries poorer. The last four years, especially in Greece, Ireland, Spain and Portugal have demonstrated this without a doubt. And, despite all the earnest pleas of Paul Krugman, political leaders don't just need to have the economics of the process explained to them to see the light. They want austerity ideologically (taxes staunch growth: neo-liberalism 101) and their supporters, who, in the US just spent $1billion on Obama alone, don't want to lose a penny to the crisis they created.
Austerity does, in fact, further enrich the top of the economic hierarchy, at least in the short term. It replaces tax raises and other redistributive programs with cash from the bottom (and middle) of society. Austerity is a technique for reverse Robin Hooding: cutting programs for the poor means they have to spend their own money to get services they require, so not only are the rich protected from economically punitive government (taxes, labor regulation), they also see poor people forced into their markets as consumers (privatization), a sort of double-dip bonus from their pals in DC, Brussels and Downing Street.
Old news, all, and we know in the long term it doesn't in fact enrich a country. Eventually, as in Greece, the government more or less runs out of assets to privatize, while the entire tax base collapses, and general impoverishment becomes the rule. It's Klein's Shock Doctrine applied in Europe. But what happens when a population is immiserated?
The end game of all this military/police spending and the death of civil liberties, why it's important for a president to be able to murder a sucker anywhere in the world at personal fiat, why we need drones and total electronic surveillance and a military trained in stale-mating (if not defeating) guerrilla uprisings becomes clear.
Poor people revolt.
The internal threat of revolution has always been the greatest threat to nations, and from the Patriot Act on, counter-terrorism laws have increased the power of the FBI, CIA and police forces in all their domestic operations. Civil libertarians have bemoaned the fact that these laws can't only target terrorists, that they will have chilling effects on free speech and could put 'innocent' (ie: non-terrorist) Americans at risk. But these consequences have hardly been unforeseen: they have always been half the point.
The last decade has seen a clear governmental calculus triumphant throughout the world. With government spending and intervention, and a defunding of the military/police state, the social services that 'must be cut' could easily be saved. Of course, to actually 'rebuild the middle class' wouldn't require only government spending, but also an across-the-board increase in wages, which have gone down under the last thirty years of union busting, off-shoring and precarity. Instead of giving up the money that would require, the owners are doubling down, and gambling on the increased capabilities of the government to stop one very likely outcome of austerity policies: open revolt.
A neo-liberal government is one that, in its purest form, never interferes in the internal functioning of the 'perfect' market, but enforces, through security apparatuses, the participation of the population in said market. The final act of neo-liberal government, then, is open war between the rich (increasingly indistinguishable from the state) and a population struggling to be free from all these 'free markets'.
In practicing extra-judicial killing, indefinite detention and total surveillance the government is getting ready for the big fight (if it should come), the fight that would, unlike terrorism, actually provide an 'existential threat' to the American state. They may be killing 'militants' in Pakistan today, but they're always also getting ready to kill 'militants' at home.