The word ‘austerity’ has been kicking around in political life, these last few years. It conjures images of Greek old people forced to eat cat food as their country’s economy collapses and to burn furniture for heat, because right-wing budget-balancing Nazis have forced cruel cuts to social spending.
I exaggerate, but not much; see this Greek depiction of Germany’s Merkel. Leaving aside the fact the Nazis were socialists who believed in Keynesian deficit-spending on public works and social benefits (much like our Democrat friends believe), the word ‘austerity’ – specifically, the image of cruel spending cuts – is largely a myth, that left-wingers deploy to narrow the range of acceptable thought.
“Look at Europe!”, cry advocates of Big Government and deficit spending, “They’ve tried austerity and it doesn’t work!” And what they mean is: don’t you dare think about government spending cuts.
If you corner them, they may acknowledge that tax hikes also count as ‘austerity’ policies. But they are usually fine with tax hikes; they love tax hikes. So when they hurl ‘austerity’ as a pejorative, they mean, DON’T CUT SPENDING.
But let’s step back a minute. Have European countries actually cut their spending? And if they are suffering, might other factors – another policy, perhaps – explain the suffering? These questions are worth examining.
This is only a blog post; we won’t look exhaustively. But let’s at least check if the major European countries have cut spending, in these last few years. (Figures will be rounded billions of annual expenditure in local currency, such as pounds or euro. In several cases, I extrapolated 4Q2012 from the previous quarters of 2012. I apologize for any inaccuracies.)
UK government spending: 582 (2008), 629 (2009), 670 (2010), 689 (2011), 695 (2012). Each year increases; no cut.
Germany government spending: 441 (2008), 453 (2009), 461 (2010), 466 (2011), 470 (2012). Each year increases; no cut.
France government spending: 150 (2008), 154 (2009), 158 (2010), 154 (2011), 156 (2012). They cut spending slightly in 2011, increased it in 2012.
Italy government spending: 301 (2008), 304 (2009), 301 (2010), 299 (2011), 297 (2012). Finally, a government that has cut its budget a little bit (2% from peak).
Spain government spending: 400 (2008), 415 (2009), 421 (2010), 418 (2011), 405 (2012). OK, Spain has cut 4% from peak.
These countries have something in common, in addition to struggling economies and little (or no) total government spending cuts. They have all hiked taxes.
While they made theoretical cuts to future spending, they have increased taxes ‘in the here and now’. Also noteworthy: their tax hikes have all yielded less revenue than expected.
Could tax hikes, the only part of ‘austerity’ policy that they have really tried up to now, be what doesn’t work? Is Europe proving for us all that tax hikes don’t work?