The hot topic in Europe is “austerity,” and the reluctance of various populations to embrace it. The term is generally understood to mean savage budget cuts, necessitated by the bankruptcy of the benevolent State. Popular anger against austerity is not difficult to muster, especially since opponents are never required to submit their own reasonable plan for avoiding budgetary disaster. Vague assurances that tax increases on faceless, evil rich people can satisfy budget shortfalls are good enough.
Until the situation degenerates to Greek levels of impending collapse, anti-austerity candidates can also assure the public that huge deficits are not harmful… or, in accordance with mangled Keynesian economics, they’re actually helpful. Only when government spends far more than it takes in can the economy function properly!
We’ve heard versions of all these arguments in the United States, as we confront our own debt crisis. They can all be refuted by studying events in both America and Europe.
For one thing, European “austerity” rarely has anything to do with “savage spending cuts.” In fact, as Veronique de Rugy recently noted in the Washington Examiner, France never actually got around to “cutting” anything, but a socialist President still swept into power by running against “austerity.” France had spending cuts only in the sense Washington has been using the term for decades: reductions in the rate of growth for government programs.
Even worse is the version of austerity peddled to U.S. voters, under the brand name of “a balanced approach”: spending cuts alongside huge tax increases. This is always treated as if it were a bold new idea, but it actually has an impressive pedigree of failure in both the United States and Europe. In the U.S., we always get the tax increases, but the spending cuts never materialize. In the Old World, De Rugy says it has “unfortunately proven a recipe for disaster.”