Sunday, May 5, 2013

What Austerity?

FreeThinke brought us an opportunity to debate Paul Krugman's krud-encrusted pronouncements, and I eagerly  launched my opening salvos. To everyone's disappointment, Marxian one-percenter and faithful Krugman-worshipper Ducky ran quacking from the field of battle. It was a particularly acute letdown given The Marxist Merganser's propensity for manly sports metaphors involving baseball and boxing. I can't call it a knockout or a win, because he fled the arena so quickly, so it was more like a cancellation or a rain out, I guess.

The Bearded Crapweasel Krugman has been on a jihad against European "austerity," but his basic premise is flawed. The Progressive Pontificator neglects to provide any evidence of this supposed "austerity." 

This punctures his balloon:
Interestingly, Krugman neglects to provide any data on British government actions. In particular, although he asserts that British policies have simply been to "slash spending," he neglects that Britain ignored the advice of free-market supporters by increasing tax rates significantly, such as raising the top marginal income-tax rate to 50 percent, the capital-gains-tax rate to 28 percent, and the value-added-tax rate to 20 percent.

More damaging to his view, as can be seen on tables 25 and 27 of this Organisation for Economic Co-operation and Development (OECD) document, British spending has experienced no significant cuts and still represents a sharp increase compared to prerecession levels. (Krugman and British Austerity)
You can go examine the source data here: OECD Data

Professor Philipp Bagus explains The Myth of Austerity:
"First of all, is there really austerity in the eurozone? One would think that a person is austere when she saves, i.e., if she spends less than she earns. Well, there exists not one country in the eurozone that is austere. They all spend more than they receive in revenues.

Imagine that a person you know spends 12 percent more in 2008 than her income, spends 31 percent more than her income the next year, spends 25 percent more than her income in 2010, and 26 percent more than her income in 2011. Would you regard this person as austere? And would you regard this behavior as sustainable? This is what the Spanish government has done."
The "austerity," such as it is, has been borne on the backs of the people, as rapacious governments confiscate even more money from them via higher tax rates. The final insult is when supposedly smart people like Krugman wonder why the economy stinks. Earth to progressives: Government does not create wealth; human activity in the free marketplace does.

Indeed, Veronique de Rugy uses OECD data to show us the connection between higher taxes and poor economic performance.  You can read about it in her scholarly study, Austerity: The Relative Effects of Tax Increases versus Spending Cuts

Nick Gillespie has the best summary:
Observers such as Paul Krugman are mistaken when they point to European austerity measures and say such outcomes prove that cutting spending doesn't work. The fact is that spending generally hasn't been cut.

Monti might have been elected on promises of cutting spending but, write Alesina and de Rugy at Forbes, "the Italian government implemented the wrong kind of austerity."

First, it raised the tax burden on its workers. Tax revenues consumed an additional 2.5 percent of GDP, bringing the total up to 45 percent.

Second, [...] the actual spending cuts have been minuscule.

(Good Austerity and Bad Austerity)
So the next time someone squawks that "austerity has failed in Europe!" Nick Gillespie recommends you ask them two questions:

1) How much was spending cut?
2) How much were taxes raised?

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