America's independent, non-partisan advocate for overburdened taxpayers.

 

Blog Contributors

Brandon Arnold
Vice President of Government Affairs 

Dan Barrett
Research and Outreach Manager 

Melodie Bowler
Government Affairs Intern 

Demian Brady
Director of Research 

Christina DiSomma
Communications Intern 

Jihun Han
Communications Intern 

Timothy Howland
Creative Content Manager 

Samantha Jordan
Communications Intern 

Curtis Kalin
Communications Intern 

Ross Kaminsky
Blog Contributor 

David Keating
Blog Contributor 

Douglas Kellogg
Communications Manager 

Sharon Koss
Government Affairs Intern 

Michael Liguori
Government Affairs Intern 

Richard Lipman
Director of Development 

Joe Michalowski
Government Affairs Intern 

Diana Oprinescu
Communications Intern 

Austin Peters
Communications Intern 

Kristina Rasmussen
Blog Contributor 

Why Europe’s Brand of “Austerity” is Fake



June 5, 2012

Has European fiscal austerity really been proven unworkable? From listening to economists like Paul Krugman lately you might just have come to that conclusion, but a closer look at the numbers demonstrates how little budget cutting was actually undertaken by our friends across the pond.

According to economic analysts at George Mason University’s Mercatus Center, a meaningful austerity package includes significant spending cuts without increased taxes:

“In a 2009 paper, Harvard economists Alberto Alesina and Silvia Ardagna looked at 107 examples in developed countries over 30 years and found that successful austerity packages — defined by a reduction in debt to GDP greater than 4.5% after three years — resulted from making spending cuts without tax increases.”

So are true fiscal austerity measures with a focus on cutting both spending and taxes what the many debt-ridden European nations have been testing out over the past several months?

It turns out the answer is a resounding “no”. A May op-ed from the Washington Examiner addressed the myth of Europe’s austerity, showing how instead of significantly cutting their spending many countries have simply raised taxes, and then wondered why their economies continue to struggle:

In France, the so called “austerity” package was half tax hikes, while Greece and Portugal relied on tax increases for 54 percent and 62 percent of their respective debt-reduction packages, according to the Organization for Economic Co-operation and Development.

Yet prominent U.S. economists like Krugman have seized on Europe’s continued economic woes to denounce spending cuts. Just last week Krugman said spending cuts have “failed dismally” and that it “is deeply destructive to pursue austerity in a depression.”

But when over half of an austerity package is based upon raising taxes, it is a faulty misrepresentation of the facts, and potentially a glaring falsehood, to declare that cutting spending has been proven unsuccessful.

Obviously, Europe’s handling of their debt crisis has important implications for the United Sates as we struggle to reign in our own billowing deficits and boost our weakened economy, but rejecting the idea of fiscal responsibility - and yes, some authentic austerity- would be a tragic mistake.


 

Comment on this blog

Nickname
Comment
Enter this word:

User Comments