Posts tagged with: Austerity

Blog author: dpahman
posted by on Thursday, September 12, 2013

Remember the “fiscal cliff”? It wasn’t a cliff.

Over at Neighborhood Effects, James Broughel asks the question, “Has the Sequester Hurt the Economy?”

So have the sequester cuts hurt the economy? One possible answer comes from a new paper by Scott Sumner of Bentley University. Sumner argues that cuts to government spending don’t have serious deleterious macroeconomic effects when the Federal Reserve is targeting inflation. This is because the Fed ensures that prices stay stable under an inflation targeting regime, which keeps demand stable even in the face of government spending cuts. Similarly, when the Fed stabilizes the price level it also offsets any beneficial effects that fiscal stimulus might have, which helps explain the lackluster results from the 2009 American Recovery and Reinvestment Act (aka the “stimulus”).

Implicit in Sumner’s theory is that expansionary austerity, or the idea that the economy can grow even in the face of large government spending cuts, is indeed possible. Some of my colleagues at the Mercatus Center have described other ways in which expansionary austerity is possible.

First of all, I would like to be clear that I do not disagree that “expansionary austerity” may be possible. Nor do I disagree that the sequester cuts have not significantly hurt the economy. However, while the sequester included spending cuts and, therefore, technically qualifies as “austerity,” it was not what everyone was making it out to be. (more…)

Writing on The American Spectator website, Acton Research Director Samuel Gregg looks at the strange notion of European fiscal “austerity” even as more old continent economies veer toward the abyss. Is America far behind?

Needless to say, Greece is Europe’s poster child for reform-failure. Throughout 2011, the Greek parliament passed reforms that diminished regulations that applied to many professions in the economy’s service sector. But as two Wall Street Journal journalists demonstrated one year later, “despite the change in the law, the change never became reality. Many professions remain under the control of professional guilds that uphold old turf rules, fix prices and restrict opportunities for newcomers.” In the words of one frustrated advisor to German Chancellor Angela Merkel, “Even when the Greek Parliament passes laws, nothing changes.”

Politics helps explain many governments’ aversion to reform. Proposals for substantial deregulation generates opposition from groups ranging from businesses who benefit from an absence of competition, union officials who fear losing their middle-man role, to bureaucrats whose jobs would be rendered irrelevant by liberalization. The rather meek measures that Europeans call austerity have already provoked voter backlashes against most of its implementers. Not surprisingly, many governments calculate that pursuing serious economic reform will result in ever-greater electoral punishment.

In any event, America presently has little to boast about in this area. States such as Wisconsin have successfully implemented change and are starting to see the benefits. But there’s also fiscal basket-cases such as (surprise, surprise) California and Illinois that continue burying themselves under a mountain of debt and regulations.

Read “Why Austerity Isn’t Enough” by Samuel Gregg on The American Spectator.

Blog author: lglinzak
posted by on Wednesday, July 13, 2011

Kishore Jayabalan, Director of Istituto Acton in Rome, was interviewed by Vatican Radio to discuss the Italian budget. Italy has a large budget crisis, and if it isn’t resolved, it may face serious financial problems similar to those experienced by Greece.

Lawmakers in Italy have begun working on austerity measures, which was the topic of Jayabalan’s interview:

“Austerity is fairly important for the Italian economy,” says Kishore Jayabalan, the director of the Rome office of the Acton Institute. But he says even with austerity, Italy will need economic growth to pay its debts.

[…]

“They are creating all kinds of impediments for economic growth. If you want to get the Italian economy reformed, the political class not only is going to have to do things like get rid of regulations, but really cut down the bureaucracy, because that is what is really bringing down the Italian economy,” Jayabalan said.

Click here to read the full article and listen to the interview.

My recent posts on politics and austerity and this week’s Acton Commentary refer to a principled basis for limited government. I speak of “the limits of government rooted in a rich and variegated civil society.”

Here’s a good statement of that basis from Lord Acton:

There are many things government can’t do – many good purposes it must renounce. It must leave them to the enterprise of others. It cannot feed the people. It cannot enrich the people. It cannot teach the people. It cannot convert the people.

Blog author: jballor
posted by on Wednesday, November 3, 2010

I introduced this week’s Acton Commentary yesterday with some thoughts about “The Audacity of Austerity.” In today’s “‘A’ for Austerity: The New Scarlet Letter,” I take to task the attitude embodied by Paul Krugman’s vilification of proponents of austerity measures.

Most recently Krugman called such advocates “debt moralizers,” implicitly drawing the connection between austerity measures and “puritanical” virtues like thrift. In this Krugman follows in the spirit of Nathaniel Hawthorne, who indeed has much to answer for in forming the popular, and mistaken, understanding of the Puritans and joyless, dour, and rigid.

But the joke is, of course, that in denouncing the “debt moralizers” Krugman is himself “moralizing.” It just so happens that instead of moralizing against wanton debt and deficit spending, he is moralizing against commonsense “puritanical” wisdom. He is moralizing against those who dare to think that government bureaucrats and the public intelligentsia aren’t fit to rule the political economy by virtue of their “expertise.”

Krugman’s message amounts to the view that the hoi polloi don’t really know what’s best for them, and it is up to the few enlightened planners of civilization to run things properly.

If I might be allowed to make another literary comparison, in this Krugman is a bit like Shift, the Ape from The Last Battle, the concluding book of C. S. Lewis’ Chronicles of Narnia series. The book beings by describing the relationship between Shift the Ape and Puzzle the Donkey (or Ass), and although both would say they are friends, the nature of the friendship is rather suspect, for “from the way things went on you might have thought Puzzle was more like Shift’s servant than his friend.”

Indeed, it quickly becomes clear that Shift uses his superior way with words and quick wit to manipulate Puzzle into doing what he wants. All the while Shift reiterates the same message to Puzzle.

Puzzle never complained, because he knew that Shift was far cleverer than himself and he thought it was very kind of Shift to be friends with him at all. And if ever Puzzle did try to argue about anything, Shift would always say, “Now Puzzle, I understand what needs to be done better than you. You know you’re not clever, Puzzle.” And Puzzle always said, “No, Shift. It’s quite true. I’m not clever.” Then he would sigh and do whatever Shift had said.

This all too often is the message from K Street (and Wall Street) to Main Street: We understand what needs to be done better than you. On the heels of yesterday’s election, it is up to the new legislators not to simply sigh on behalf of their constituents and go along with the way things always go inside the Beltway.

As I argue in today’s commentary, contrary to Krugman, we ought to think of the ‘A’ for austerity not as a scarlet letter but rather as a red badge of political courage.

Blog author: jballor
posted by on Tuesday, November 2, 2010

The title of this post borrows from a phrase I employ in the conclusion of tomorrow’s Acton Commentary on the prospects for austerity in America after today’s mid-term elections. (I can’t claim to have coined the term, since about 4,270 other instances of the phrase show up in a Google search, but I like it nonetheless.)

Today I’ll simply highlight a few of the relevant stories that I’ve noted on this theme over recent weeks and months.

As Samuelson notes, austerity is by its very nature unpopular. Speaking of the dilemma facing governments, he writes, “Without unpopular spending cuts and tax increases, unmanageable deficits may choke their economies.”

Tomorrow I’ll discuss the treatment of austerity as a leitmotif in the writings of Paul Krugman, who most recently dubbed austerity proponents “moralizers.” The significance of this will be made more clear tomorrow in relation to my commentary, “‘A’ for Austerity: The New Scarlet Letter.”