Reading the
financial press, one gets the impression there are only two sides to the
austerity debate: pro-austerity and anti-austerity. In reality, we have three
forms of austerity. There is the Keynesian-Krugman-Robert Reich form which
promotes more government spending and higher taxes. There is the Angela Merkel
form of less government spending and higher taxes, and there is the Austrian
form of less spending and lower taxes. Of the three forms of austerity, only
the third increases the size of the private sector relative to the public
sector, frees up resources for private investment, and has actual evidence of
success in boosting growth.
Let’s take a
closer look at the Merkel form of austerity being implemented in Europe in
which governments “plan” to cut their spending and raise tax revenues. Of
course, “planned” cuts are not actual cuts. Four years after the crash of 2008,
the UK government had only implemented 6 percent of planned cuts in spending
and only 12 percent of planned cuts in benefits. In almost all European
countries, government spending is higher today than it was in 2008. A new study
by Constantin Gurdgiev of Trinity College in Dublin examined government
spending as a percentage of GDP in 2012 compared with the average level of
pre-recession spending (2003–2007). Only Germany, Malta, and Sweden had
actually cut spending…....Without
growth, Europe is heading for a train wreck since it will shortly be unable to
finance its debt. It must refocus its strategy toward stimulating production,
freeing up Europe’s entrepreneurial spirit. This is a policy much more likely
to succeed....To Read More….
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