Austerity in Europe. Has it been tried or not?

There is doubt…

Writing in Cafehayek.com, Russ Roberts responds to John Cassidy’s article in the New Yorker in which Cassidy writes:

When the campaign turns to questions of economics, what is happening in Europe should provide Obama with plenty of arguments with which to flay his opponents. Republicans say they want to slash government spending and focus on the deficit regardless of the immediate economic situation. The Europeans have carried out that experiment, and, to say the least, it hasn’t turned out very well.

Robert’s questions (bold is our emphasis),

Really? Which nations in Europe have slashed government spending? I suppose “slash” is an ambiguous term but when you write  that the experiment has been tried, don’t you have to show that spending has at least been cut or reduced, right? Maybe some European states have slashed the growth rate in government spending? Is that what he means? If so, shouldn’t different words be used? And either way, should there be some facts on this “experiment.” The word implies something scientific. But it all appears to be going on in the mind of the writer rather than in the real world.

Similarly, this has us questioning exactly how budgets have been reduced. Researcher Veronique De Rugy has studied the “austerity” measures in the U.K, France, Germany and Greece and has formed several conclusions which she reveals in the video below. De Rugy and interviewer Nick Gillespe talk in detail about the budget process and what types of austerity work and which don’t work, citing academic studies.

Here are a couple of bullet points that we think are key takeaways.

  • The successful debt reduction package that works is centered strictly on budget cuts, not the balanced approach which simultaneously makes budget cuts and increases taxes.
  • In these so called “balanced” approaches, the tax increases are real, but the spending cuts are not.
  • Germany has successfully reduced the size and pay of government employees and resolved the incentive problems with unemployment insurance, yet few hear about German “austerity” and the focus is on Greek, French and U.K austerity, which have largely failed to materialize.


If the material De Rugy cites is accurate (often difficult with government provided data), then this answers Robert’s and our question. Austerity might be real, but not in the countries complaining about austerity.

John

References:

Russ Robert’s wants to know if austerity is real.

http://cafehayek.com/2012/05/the-austerity-experiment.html

This entry was posted in Economics, EU, Government, Government Spending, John McClelland, Politics and tagged , , , , , , , . Bookmark the permalink.

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