Six Quick Points About Why Austerity is a Dumb Idea

Despite its many failures, “austerity economics” keeps remaking—and unmaking—the global economy.  The only disagreement at this weekend’s Republican debate was over which candidate would push austerity more aggressively. And austerity dominated the political agenda last year—“Deficit Commission,” anyone?—until Occupy came along.

1. What is it?

The Longman Dictionary of Contemporary English defines “austerity” as “when a government has a deliberate policy of trying to reduce the amount of money it spends.”

Wikipedia calls it “a policy of deficit-cutting, lower spending, and a reduction in the amount of benefits and public services provided,” adding that it’s “sometimes coupled with increases in taxes to pay back creditors to reduce debt.”

Got that? Austerity backers want government to spend less on benefits and public services, and to pay back its creditors more quickly. Higher taxes aren’t part of the plan and they’re strictly optional.

2. What’s austerity supposed to accomplish?

Austerity advocates don’t just see lower deficits and reduced debt as tools to promote long-term economic health. They consider them ends in themselves—sometimes even as moral values.

Many austerity advocates see government spending as inherently evil. That goes for all government spending, including police, teachers, nurses, and firefighters.

Sure, some of them will admit there can be necessary evils or useful evils—usually weapons procurement or law enforcement. But spending is always evil.

Other people aren’t philosophically opposed to government spending, but have been convinced that it has become unaffordable today.

3. What’s the theory behind austerity economics?

To answer that, it’s important to understand that the economics profession has been systematically taken over by well-funded conservative academics. They’ve created elaborate theoretical constructs to prove that government spending is economically destructive.

These include theories like ‘Barro-Ricardo equivalence,’ which says people won’t spend money when they know their government’s incurring debts they’ll have to pay someday. Conservative economists like Robert Barro insist this is true even in times of widespread unemployment, like now, and argue against stimulus spending to create jobs.

Oddly, they find this theory more compelling than the idea that people aren’t spending money because they don’t have jobs.

Then there’s supply-side economics, which argues that the best way to grow the economy is by cutting taxes. That means smaller government. Supply-siders also rely on the “Laffer curve,” which says people will stop investing, producing, and creating jobs if taxes are too high.

Austerity advocates also argue that international markets will lose confidence in governments if they don’t curb spending and will charge them higher interest. So they even push cuts in Social Security, which doesn’t even add to the deficit, because macroeconomists consider it ‘government spending.’

4. Do these theories make sense?

Economists argue about this kind of thing ferociously, but we can look at the record and reach some common-sense conclusions about whether these theories are right or wrong:

Barro-Ricardo Equivalence: Wrong. To affect demand, government spending would have to be much higher than it is today.

Supply-Side Economics: Ridiculously wrong. We’ve had lower taxes and less regulation for more than a decade. Where are the jobs?

Laffer Curve: Also wrong. This country had a 70% tax rate or higher for top earners and the economy was doing much better than it is today. At 98% or higher, as the top rates once were in Great Britain, this could be a legitimate concern.

But now? Nah.

5. Does austerity work?

A resounding no. That’s the conclusion reached in this paper from the International Monetary Fund. (The IMF was once the world’s leading enforcer of austerity measures.)

Austerity’s been a disaster for Great Britain and Europe, yet leaders are demanding more of the same—there, and here. They’re ignoring the approaches that have worked in the past, as in the Great Depression: Invest in short-term growth, put people back to work, and then address long-term deficit issues once the economy’s back on its feet.

6. Why do people still push austerity?

Some do it because they’re still under the influence of economists indoctrinated in that profession’s conservative intellectual orthodoxy.

It’s also in many politicians’ interests to promote austerity, since wealthy and powerful people like the idea of lowering their own taxes.

One thing’s for sure: They’re not doing it because they’re looking at the facts.