Historcial Empirical Evidence Simply Refutes This Assertion ☀
Why the United States and Europe can’t cut their way to economic prosperity
In the United States, a different set of factors is driving the trend. With unemployment high and long-term interest rates near record lows, inflation under control, and Democrats poised to suffer losses in the midterm elections, further stimulus would seem to be a no-brainer. But the same internal debate that roiled the Clinton White House in 1993—when advisers Robert Rubin and Robert Reich tangled over the relative merits of deficit and reduction and stimulus—is being replayed today. In 1993 the Rubinites won the day, arguing that Democrats needed to demonstrate a commitment to deficit reduction to avoid being tarred as tax-and-spenders. Seventeen years later, the Obama administration has made a different calculation: Higher short-term deficits are a greater political risk than slower growth and higher unemployment. But the debate fails to recognize the anti-stimulus provided by states and cities, which are prohibited from running deficits. The Center on Budget and Policy Priorities calculated that 33 states made tax changes in 2008 or ‘09 that would increase annual revenues by $31.7 billion. Meanwhile, state and local governments slashed 22,000 jobs in May. “The actions that states are taking because of the recession and their balanced-budget requirements are slowing the economy,” said Nicholas Johnson, director of the state fiscal project at CBPP.
It’s difficult to contract your way to growth. The world’s large economies need to run higher deficits in the short term to promote growth and close the gaps later. St. Augustine famously pleaded: “Grant me chastity and continence, but not yet.” Policymakers might stop looking to Milton Friedman and John Maynard Keynes and rethink Augustine. Give us austerity and deficit reduction—but not yet.
This misses the fundamentals completely. Debt is a claim on future resource consumption. No one is claiming that austerity will immediately foment economic growth - rather, starvation and catastrophe, felt most harshly amongst the lower classes. This is why labor organizations and other working-class interests oppose austerity worldwide.
That said, the working-class interests should have had that in mind when the first-world built up generational deficits instead of funding entitlements, wars, and pork. Demanding entitlements without demanding taxes to pay for them firmly places the recipients of those entitlements in the economic crosshairs. No pro-austerity economist is saying that austerity is some wonderful pro-growth future; rather, austerity is a necessary pain undertaken by my unlucky generation to clean up the myriad disasters left to us by those who simply voted themselves the treasury.
Yes, certainly, debt represents “a claim on future resource consumption”. But adhering to such a policy advocacy is a blatant demonstration of zero-sum thinking — a misguided notion that present day costs are absolutely equivalent to future date costs. All of our nation’s (speaking of the U.S.) great economic expansions were fueled by massive outlays (and decried in similar fashion) of “stimulus”. Years hence, those obligations will be pennies pitted against dollars (or greater).
The historical record is rather clear on the matter and completely debunks the orthodoxies of dumbstruck neoliberal economists.
