'Austerity is everywhere but in the statistics'

Paul Krugman and his merry band of Keynesians have been wailing for years about how "austerity" has kept the world in recession. Only through massive stimulus spending can Euro-economies resume their growth.

To a lesser extetnt, the same holds true for the US, they claim. With real unemployment still over 10%, this is no time for the sequester and other austerity measures.

But suppose - just suppose - that "austerity" is a myth and that far from slashing spending to the bone, european economies are still spending like there's no tomorrow?

Paul Roderick Gregory writing in Forbes:

The official Keynesian story is that the PIIGS of Europe (Portugal, Italy, Ireland, Greece and Spain) have been devastated by cutbacks in public spending. Austerity has made things worse rather than better - clear proof that Keynesian stimulus is the answer. Keynesians claim the lack of stimulus (of course paid for by someone else) has spawned costly recessions which threaten to spread.  In other words, watch out Germany and Scandinavia: If you don't pony up, you'll be next.

Erber finds fault with this Keynesian narrative. The official figures show that PIIGS governments embarked on massive spending sprees between 2000 and 2008. During this period, their combined general government expenditures rose from 775 billion Euros to 1.3 trillion - a 75 percent increase. Ireland had the largest percentage increase (130 percent), and Italy the smallest (40 percent). These spending binges gave public sector workers generous salaries and benefits, paid for bridges to nowhere, and financed a gold-plated transfer state. What the state gave has proven hard to take away as the riots in Southern Europe show.

Then in 2008, the financial crisis hit. No one wanted to lend to the insolvent PIIGS, and, according to the Keynesian narrative, the PIIGS were forced into extreme austerity by their miserly neighbors to the north. Instead of the stimulus they desperately needed, the PIIGS economies were wrecked by austerity.

Not so according to the official European statistics. Between the onset of the crisis in 2008 and 2011,  PIIGS government spending increased by six percent from an already high plateau.  Eurostat's projections (which make the unlikely assumption that the PIIGS will honor the fiscal discipline promised their creditors) still show the PIIGS spending more in 2014 than at the end of their spending binge in 2008.

As  Erber wryly notes: "Austerity is everywhere but in the statistics."

The Keynesian narrative about "austerity" shows the utter dishonesty of hysterical partisans like Paul Krugman who count on the gullibility of both the voter and the legislator to push their ideas. The notion that we can deal with the deficit later is either naive belief or total ignorance about politics. Does anyone really think that even if we get the economy moving so that it's growing at 4-5% again that Krugman will suddenly announce that it is time to deal with the deficit? He will make the argument that cutting the budget will be disastrous for growth and that it is perfectly reasonable to carry a deficit of 5% of the budget.

There is no reasoning with Keynesians. They must be slapped down with facts - hard. It was their expansive spending policies that gave us a $16 trillion debt in the first place. Why should we trust them to fix a problem that they don't even acknowledge being much of a problem?

Paul Krugman and his merry band of Keynesians have been wailing for years about how "austerity" has kept the world in recession. Only through massive stimulus spending can Euro-economies resume their growth.

To a lesser extetnt, the same holds true for the US, they claim. With real unemployment still over 10%, this is no time for the sequester and other austerity measures.

But suppose - just suppose - that "austerity" is a myth and that far from slashing spending to the bone, european economies are still spending like there's no tomorrow?

Paul Roderick Gregory writing in Forbes:

The official Keynesian story is that the PIIGS of Europe (Portugal, Italy, Ireland, Greece and Spain) have been devastated by cutbacks in public spending. Austerity has made things worse rather than better - clear proof that Keynesian stimulus is the answer. Keynesians claim the lack of stimulus (of course paid for by someone else) has spawned costly recessions which threaten to spread.  In other words, watch out Germany and Scandinavia: If you don't pony up, you'll be next.

Erber finds fault with this Keynesian narrative. The official figures show that PIIGS governments embarked on massive spending sprees between 2000 and 2008. During this period, their combined general government expenditures rose from 775 billion Euros to 1.3 trillion - a 75 percent increase. Ireland had the largest percentage increase (130 percent), and Italy the smallest (40 percent). These spending binges gave public sector workers generous salaries and benefits, paid for bridges to nowhere, and financed a gold-plated transfer state. What the state gave has proven hard to take away as the riots in Southern Europe show.

Then in 2008, the financial crisis hit. No one wanted to lend to the insolvent PIIGS, and, according to the Keynesian narrative, the PIIGS were forced into extreme austerity by their miserly neighbors to the north. Instead of the stimulus they desperately needed, the PIIGS economies were wrecked by austerity.

Not so according to the official European statistics. Between the onset of the crisis in 2008 and 2011,  PIIGS government spending increased by six percent from an already high plateau.  Eurostat's projections (which make the unlikely assumption that the PIIGS will honor the fiscal discipline promised their creditors) still show the PIIGS spending more in 2014 than at the end of their spending binge in 2008.

As  Erber wryly notes: "Austerity is everywhere but in the statistics."

The Keynesian narrative about "austerity" shows the utter dishonesty of hysterical partisans like Paul Krugman who count on the gullibility of both the voter and the legislator to push their ideas. The notion that we can deal with the deficit later is either naive belief or total ignorance about politics. Does anyone really think that even if we get the economy moving so that it's growing at 4-5% again that Krugman will suddenly announce that it is time to deal with the deficit? He will make the argument that cutting the budget will be disastrous for growth and that it is perfectly reasonable to carry a deficit of 5% of the budget.

There is no reasoning with Keynesians. They must be slapped down with facts - hard. It was their expansive spending policies that gave us a $16 trillion debt in the first place. Why should we trust them to fix a problem that they don't even acknowledge being much of a problem?

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