Drunkard: I was at the festival of the vernal equinox, and I guess I had a little too much mead.. and I darted out in front of an oxcart. It all happened so fast. They couldn’t stop in time.
Theodoric of York: Well, you’ll a lot better after a good bleeding.
Drunkard: But I’m bleeding already!
Theodoric of York: Say, whos the barber here?
As the budget debate in America goes from “mild cuts” to “severe cuts,” it’s worth looking at parliamentary democracies where such so-called “austerity” budgets have already been instituted. Uh, not so good, it turns out. Ireland’s economy needs another bailout. Portugal needs an EU bailout. Why does Portugal need a bailout? Their government failed to create an “austerity” budget.
Wait a minute… I thought they already had an “austerity” budget. Indeed, they did. And yet, their economy continues to putter along, further damaging its bonds and convincing bondholders that they will not be able to pay back their loans.
Just so we’re clear, if you’re in a recession, and you cut spending while drastically raising taxes to close your budget gap, for some reason, your economy doesn’t turn around. Imagine that!
“Austerity” measures (which sounds so much better than “harsh, restrictive” measures), although they ostensibly calm bond-holders, don’t appear to do very much. Take a look at the countries with the most drastic cuts — the UK and Germany. Although they are recovering, they are not nearly as robust as the stimulus-only American economy. The tight-fisted European Central Bank refuses to loosen the monetary strings, particularly with the Eurozone’s various economies in such different states of recovery.
Yes, there are nuances to growth, particularly with the no-money-for-anyone credit policy in the ECB. Still, as a general rule, stimulus spending grows GDP; austerity spending restricts it.
Now, Paul Ryan is pitching the same program of entitlement cuts that has 0.5% growth per quarter in Germany, and everyone’s buying. It’s like I’m taking crazy pills.
Oh, you’re bleeding? I know what your economy needs: another bleeding! The “austere” budget is just shorthand for sadism.