How savage has European austerity (spending cuts) been?

by on May 8, 2012 at 12:51 am in Data Source, Economics | Permalink

To be sure, there are particular small countries which have made serious spending cuts, in the Baltics most of all.  But sometimes one hears it said that an anti-austerity strategy must be EU-wide as a whole, or that austerity is “a failed strategy for the eurozone,” or something similar.  So perhaps it is worth looking at some numbers for the larger picture.  Here is a graph which puts the matter in some perspective:

Veronique de Rugy, who compiled this data, writes:

First, I wish we would stop being surprised by what’s happening in Europe right now. Second, I wish anti-austerity critics would start acknowledging that taxes have gone up too–in most cases more than the spending has been cut. Third, I wish that we would stop assuming that gigantic “savage” cuts are the source of the EU’s problems. Some spending cuts have been implemented in a few countries. Also, if this data were adjusted for inflation (which I would prefer but the data isn’t available) it would possibly show a slight decrease and certainly a flatter line for all countries. However, the overwhelming take away from the European experience is that a majority of governments haven’t really implemented spending cuts, large or small, and some have even continued to grow.

There is further discussion at the link.  Via Pat Lynch, here you will find OECD data, no country is spending below its 2004 level.

Addendum: My response from the comments section:

The real question addressed by this post is how bad spending cuts have been in nominal terms, keeping in mind in the short run it is supposedly nominal which matters (that said, gdp and population [and inflation] are not skyrocketing in these countries for the most part).  It is fine to argue “due to automatic stabilizers, spending should have increased more than it did.”  That is not how people phrase it, rather they are complaining rather vociferously about “spending cuts,” many of which are either imaginary or extremely small.

From the shrillness of responses, and by the frequency of frame switching, one can see how this post and this data have hit a raw nerve.

CPV May 8, 2012 at 2:12 am

Who came up with the marketing slogan of “austerity” for basic fiscal responsibility? Why is that politicized word allowed to continue to frame the debate?

Michael G Heller May 8, 2012 at 5:12 am

Couldn’t agree more. The older word “retrenchment” in the days of Gladstone was a lot better. It’s more active and participatory and work oriented. Like digging the trenches or something. And it has the appropriate systemic connotations.

“Retrenchment means rationalisation of the functions of the state…”, as Schumpeter said, and I’ve just written a post about needing to see austerity in the larger context of techno-economic change. The anti-austerians are trying to turn it into theatre.

http://www.project-syndicate.org/blog/schumpeter-calls-krugman

TallDave May 8, 2012 at 7:22 am

Exactly, I’ve been saying for a while it needs to be called it is:solvency.

One is either solvent or insolvent. “Austerity” sounds like we’ve taken the gov’t to a Buddhist monastery, where it has taken a vow of poverty, relinquishing all material comforts.

ila May 8, 2012 at 9:20 am

Zen and the art of government finance, perhaps?

Tad Furtado May 12, 2012 at 1:38 pm

How about stewardship?

mulp May 8, 2012 at 2:28 am

No spending cuts in the aggregate, but large numbers of individuals getting more balanced in part by large numbers getting less.

If a million people lose jobs in the private sector they suffer austerity living on a reduced income from increased government spending on unemployment benefits, which has been partially offset by cuts to university which causes austerity for hundreds of thousands of students who get less access to classes or must pay more.

In Europe the state provides benefits more widely so students get some form of welfare when they graduate.

According to conservative theory, unemployment benefits causes unemployment, thus in the US, graduating students do not get UE benefits and thus no graduates are ever unemployed because they do not have the choice of not working to get welfare. Likewise, no childless women and no men are ever unemployed because they don’t qualify in most places for any welfare. Given the large numbers of young adults and older single adults without children who are unemployed, this conservative theory must be false – welfare does not create unemployment.

Cliff May 8, 2012 at 9:50 am

Welfare creates unemployment at the margin

Ralph Gardner May 17, 2012 at 4:45 pm

It should depend on if there are jobs that the people are qualified for and they can get to, available.

groupuscule May 8, 2012 at 2:03 pm

Exactly. We have austerity setting in at an extremely rapid pace here in Baltimore City. That doesn’t mean the City is spending less… it spends everything it can! But it spends the money on big developers, police, and prisons—meanwhile cutting back on pools, rec centers, libraries and fire departments.

jpa May 8, 2012 at 2:49 pm

You forgot to factor in recent grads who are still supported by their parents who are holding out / working towards a decent job. That is the bulk of of the recent grad unemployed. If they were truly starving, they would move to ND or take a low wage job in service/retail/labor.

For older adults, consider people who are living off savings to look for higher paying jobs. I have relatives in this category.

I refuse to believe that people who rather starve and go homeless vs. work at Walmart or mowing lawns.

Ben May 9, 2012 at 9:45 pm

There are enough jobs for everyone? Cool story, bro.

Someone who is not as stupid as Miss de Rugy May 8, 2012 at 2:37 am

Wait sorry, when did anti-austerity types start believing that taxes were expansionary, spending cuts and tax rises are both crap for aggregate demand in the absence of expansionary monetary policy and a non-debt contrained private sector. There maybe a slighlt difference thanks to the balanced budget multiplier, but taxes are as much part of austerity as spending cuts any measure that doesn’t include both of them is monumentally stupid as the average national review journalist (oh wait).

Stimulus believers are worried about the net contribution to aggregate demand that government final (which doesn’t include the fiscal transfers implicit in that graph!) spending on goods and services makes per year (at least when we use annualised GDP growth figures), its not the absolute figure on government spending not-adjusted for inflation or population growth (which is important in the case of France and UK)!

I’ve bleeding had it with people using deficits and absolute spending as measures of stimulus! We’re talking about growth and Aggregate Demand, not the size of government or the shortfall between revenues and spending!

Gee what if tax revenues collapsed more than spending fell for a Government due to declining aggregate demand! oh wait that would be silly, an accurate description of most of the developed world right now, but silly.

Oh Tyler notice this article mentions diddly squat on monetary expansion (which apparently you support) compensating for fiscal one, but I suppose if you’re deluded* enough to think a single months datapoint suddenly resurrects the never alive empircal viability of RBC models then I suppose you can take the National Review seriously. Notice it manages to make the problem about taxes (well considering the likelihood of de Rugy being on team republican I suppose its only natural that she leave the miracle cure of “tax cuts” intact).

* that’s what happens with sufferers of the mental condition of Milton’s syndrome its where libertarians (softcore in your case) whose brains are able to observe reality’s Keynesian bias but unable to process because they are above 8 on the Libertarian spectrum. Unfortunately there is no known cure.

To CPV above, austerity is basically when you try to cut the deficit (through cuts and taxes) without any compensating expansion of aggregate demand from elsewhere (i.e. hard money too, don’t ask me ask Scott Sumner). The problems is that economies with hard money and debt constrained actors have a tendency to get into negative feedback loops which see government fiscal “responsibility” met with declining tax revenues to the degree that the “good work” of spending cuts and tax rises is almost completely wiped out….oh yeah and there’s all the feckless involuntary unemployed types too.

Andrew' May 8, 2012 at 6:39 am

“I’ve bleeding had it with people using deficits and absolute spending as measures of stimulus! We’re talking about growth and Aggregate Demand, not the size of government or the shortfall between revenues and spending!”

Okay, then what X variable do you want to use as the cause of the Y variable effects of growth and Aggregate Demand you refer to? It seems to me there is a lot of talk about “increase AD” “How?” “by increasing AD.” “How?” “Stop it with the austerity, and increase AD!”

And simply this – people should recognize that it is not “austerians” forcing spending cuts because there aren’t spending cuts. It is also not “austerians” pushing up bond yields. It’s not “austerians” screwing up monetary policy.

That is election marketing. Maybe it worked in Europe. I suppose we’ll see if the winners can make the economics of “growth” work. Over here, if it’s really about debt and taxes, maybe people should stop touting tax increases (not to mention new spending programs).

dead serious May 8, 2012 at 9:19 am

A common theme is that the megarich shouldn’t be subject to high progressive tax rates because they are job creators.

Here is a way to spur job creation without putting full faith in the above platitude: for every $x million in a person’s net worth, he must prove y number of staff on his payroll. Show that, and his tax rate is lowered.

Like many of the readers of this blog, I’d prefer growth to come in the private sector but it just isn’t happening.

ila May 8, 2012 at 9:24 am

The difference between the MP of the number of extra workers required and the minimum salary/benefits package he must pay is an excision. Whether he pays it to the government or to ZMPers he hires is of little concern to him.

dead serious May 8, 2012 at 9:54 am

Then you’re saying they’re not really job creators after all.

TallDave May 8, 2012 at 11:14 am

He’s saying they aren’t ZMP job creators.

Business owners tend to create productive jobs, i.e. jobs that fulfill a need, not ZMP jobs — you’re saying “hire workers you don’t need, or pay the gov’t the equivalent in taxes.” Makes no difference to the owner, he’s getting just as screwed either way.

Bernard Guerrero May 8, 2012 at 12:28 pm

ZMP, baby!

TallDave May 8, 2012 at 10:50 am

Wow, what a great way to reduce productivity. Enjoy your depression.

dead serious May 8, 2012 at 11:36 am

Either the rich shouldn’t pay higher taxes because they are creating jobs or they aren’t creating jobs and should pay higher taxes.

I’m not arguing that the rich should hire ZMP workers. I’m saying that if the opportunity exists to hire marginally productive workers, the rich should be incentivized to do so. If not, enjoy the higher taxes.

Zachary May 8, 2012 at 12:19 pm

@ dead serious: “if the opportunity exists to hire marginally productive workers, the rich should be incentivized to do so”

If there is an opportunity, then there is an incentive. It the workers are productive, then they will produce a profit for the employer. The market already provides an incentive. If the workers are ZMP – or lower than the opportunity cost of the leisure – then the market provides the correct incentive to keep them idle. The incentives are there, the workers aren’t.

Gary May 11, 2012 at 10:31 am

“austerity is when you cut the deficit without any compensating expansion of aggregate demand elsewhere”

Lol, seriously? By that logic if a government was planning to spend $1trillion more the following year but only spent $500 billion more, that would be austerity…are you telling me aggregate demand knows how much governments were planning to spend?

Dave L May 8, 2012 at 2:39 am

Indeed, as noted but not handled, these numbers are current prices. Eurostat has numbers for expenditures / GDP, one way of correcting for inflation, freely available, also from the US. OECD numbers reported suffer from the same problem. Using exp / GDP, all countries but three (Belgium, Slovenia and Cyprus) saw expenditures/GDP fall from 2009 to 2011, in some countries quite remarkably.

In any case, the bigger point is what policy is relative to what it should have been under an optimal crisis response. If an optimal response is increasing expenditures (and no one really knows what the optimal response is), then declining expenditures / GDP is surely the wrong way to go.

Bill May 8, 2012 at 3:08 am

What a misleading post.

Ask yourself this question: what has not been controlled for with the multi year fiscal comparison?

Come on, you know the answer.

If there is a severe recession, all else being equal, would unemployment insurance or other forms of unemployment benefits increase or decrease?

Did you also notice the graph started at the end of the last and less severe recession?

Ricardo May 8, 2012 at 3:18 am

This is a non sequitur: there is no reason that nominal spending in euros alone is a proper measure of “austerity.” Not only do we need to factor in inflation, population growth, and taxes but we also need to know what the money is being spent on. Everyone from John Cochrane to Paul Krugman will agree on the logic of automatic stabilizers and how real spending per capita may justifiably rise during a period of depressed economic output and employment.

In monetary economics, it is common to measure monetary policy by comparing the central bank’s interest rate with an interest rate generated by something like the Taylor Rule. We need the same thing for fiscal policy: a measure of a “neutral” or rules-based policy against which actual policy can be judged. Absent a fiscal-equivalent of the Taylor Rule, it’s not clear how we are supposed to learn useful things about European fiscal policy by looking at graphs of nominal spending.

GiT May 8, 2012 at 3:28 am

Ok, so…

don’t control for inflation
don’t control for real GDP/population growth
don’t control for built-in countercyclical government spending increases
don’t consider tax increases to be austerity policy

What else am I missing?
How else are we preying on the innumerate this week?

But anyways, this sparks a serious question for me:

Is austerity policy reducible to contractionary fiscal policy (spending down, taxes up)? That would make sense if austerity is about debt repayment.
Or is austerity policy reducible to anti-government fiscal policy (spending down, taxes down)? That would make sense if austerity is about shrinking government.

There’s an equivocation here that should be sorted out. Though I guess the conservatives want to have it both ways – repay debts and shrink government spending. Too bad the two policies are in competition with one another in the short term.

That sort of equivocation doesn’t seem to happen with stimulus policy, which I understand to be unequivocally about expansionary fiscal policy (spending up, taxes down).

Tyler Cowen May 8, 2012 at 3:45 am

The real question addressed by this post is how bad spending cuts have been in nominal terms, keeping in mind in the short run it is supposedly nominal which matters (that said, gdp and population are not skyrocketing in these countries for the most part). It is fine to argue “due to automatic stabilizers, spending should have increased more than it did.” That is not how people phrase it, rather they are complaining rather vociferously about “spending cuts,” many of which are either imaginary or extremely small.

From the shrillness of responses, and by the frequency of frame switching, one can see this post and this data have hit a raw nerve.

RZ0 May 8, 2012 at 7:03 am

Don’t know about the size of the dole there, but it seems remarkable to me that Spain’s overall spending could shrink as the unemployment rate ballooned past 20%. I guess that’s not much of an automatic stabilizer.

Teddy Groves May 8, 2012 at 7:28 am

I think you might be equivocating a bit here. Are you making a technical argument about economic theories or a general argument about political strategies? The part where you say “sometimes one hears it said that an anti-austerity strategy must be EU-wide as a whole” suggests the latter whereas “in the short run it is supposedly nominal which matters” suggests the former.

I don’t think either argument is very good when considered in isolation. From an economics point of view it isn’t relevant how people phrase things or what is “savage” and what isn’t. The question is which theory is best confirmed by the available evidence, and as you point out, the-theory-that-shall-not-be-named can accommodate this evidence. From a broader political strategy point of view, (at least from mine in London) it is pre-reflectively obvious that there is major austerity going on across Europe, and the fact that (pace whatever inflation assumptions are implicit in the graph) government spending might not technically have fallen very much doesn’t alter that bigger picture. I think you have acknowledged before at least in the case of Greece that this kind of broadly-construed “austerity” is a real and serious phenomenon.

Finally I think it is a dangerous habit to interpret shrill responses as lending support to your arguments!

TallDave May 8, 2012 at 7:42 am

it is pre-reflectively obvious that there is major austerity going on across Europe, and the fact that (pace whatever inflation assumptions are implicit in the graph) government spending might not technically have fallen

Heh.

Benny Lava May 8, 2012 at 8:47 am

Maybe it hit a raw nerve because it is a terrible post with bad data? Nominal instead if real dollars, no Ireland…it is like you (and de Rugy) are trying to parse the numbers in the only way they can show what you want them to show. And yet it still demonstrates the opposite (see below).

Scott B. May 8, 2012 at 11:50 am

And on top of that, I call foul on low resolution axes. If you make the axes big enough, every trend looks flat. Take the line for Spain, for example. If you extrapolate to today, you’re looking at a trend line that would have hit at least 550 billion Euros, and is instead due to austerity closer to 470. That’s around 15%! And yet somehow that’s not supposed to matter, because in nominal terms it’s still more than 8 (!) years ago. Come on. 15% is huge, especially if it is concentrated on certain sectors (such as jobs that might employ young people or help pay for schooling).

TallDave May 8, 2012 at 12:43 pm

I distinctly recall many commenters telling us hiding part of the Y axis to make changes appear larger was a terrible sin against honest charting when Alex or Tyler did it a while back

Ray Lopez May 8, 2012 at 9:22 pm

I was going to say something similar–it’s hard to interpret the data as originally presented. Take Greece for example, which has a roughly 300B USD GDP nominal. OK I figured it out–going to the OECD link provided by Tyler. In fact, government spending has gone up across the board, by about 35% (or 20% in the case of Greece) since 2004, so naturally people are reluctant to cut back. Fear of the unknown. Much ado about nothing in this thread, as the data really does not show anything special. I guess the point should have been how austerity would bring prosperity (a sort of reverse Keynesianism) but as most governments practice deficit spending during recessions (more so than usual) that point is somewhat moot.

kent May 8, 2012 at 12:11 pm

From the shrillness of responses and the frame switching I deduce a raw nerve being hit? You must be joking. You could have gotten more shrill responses and more frame switching simply by posting something implying that women are inferior to men, slavery was underrated, or the Jews deserved everything they got … or for that matter up is down, slavery is freedom, and black is white. People would naturally screech, and they would naturally use various arguments utilizing different ‘frames’, in order to explain to you just how wrong you are.

Hal McClure May 8, 2012 at 3:23 pm

The framing of the question by the National Review may have been nominal spending but when almost any macroeconomist frames over time spending comparisons, they at least do this in real per capita terms. I’m rather surprised that you would have fallen for the framing of a question in terms of a publication with the history of the National Review.

TallDave May 8, 2012 at 4:43 pm

Looks like the sodium channels are still open on this one.

Ben May 9, 2012 at 9:52 pm

When you compare how much spending normally increases in response to deep recessions to the current levels, the differences ARE significant, regardless what adjective we choose to use.

Unreadable May 8, 2012 at 4:16 am

You should at at least provided a separate graph for each country or normalized the values somehow. Greece and France in the same graph with nominal values? Come on.

Or specified the peak spending level in 2009. Why even include the 2002-2008 period? That’s just obfuscating the issue of how large the cuts have been during the austerity program. Also, where is Portugal, Ireland, Estonia, Latvia? Cherry picking much?

Tyler Cowen May 8, 2012 at 4:20 am

Mood affiliation fallacy, read the first paragraph of the post.

Unreadable May 8, 2012 at 4:32 am

What’s the reason for not showing them then? Would it fail to make a point? Portugal is not far from the size of the Greek economy.

From the OECD link I can see that between 2009 and 2010 Greek spending moved from 67.8 to 58.4. That’s a 14% drop in expenditure impossible to grasp due to the obfuscating in the graph. But I guess there’s no austerity in Greece.

tt31 May 8, 2012 at 8:28 am

Ugh. There is a disappointing trend in this blog to increasingly write off contrasting positions as “mood affiliation.” I think I remember this blog (and I think it was Tyler) arguing not too long ago that commentators should be generous in interpreting opposing points of view, and respond to the generous interpretation, not the the actual presentation. Apologies if I got that wrong. However, I do think it would be helpful if each time you are tempted to type “mood affiliation,” to take a deep breath, and maybe ask yourself if you are following that principle. (Note – That principle isn’t appropriate for all blogs/commentators, but I think it is consistent with what many readers are looking for from here.)

RG May 8, 2012 at 8:48 am

The mood affiliation is appopriate here. There are many people claiming that austerity doesn’t “work” and that it is killing Europe. They fail to note that the goal of austerity is not to promote short term growth but rather to get budget imbalances on a more sustainable path. They ignore the year over year spending increases that placed these countries on an unsustaible path and wish that AD can somehow be revived to previously unsustainable levels. They ignore public choice theory in believing that we can get growth now, and credibly promise austerity somewhere down the line.

tt31 May 8, 2012 at 9:22 am

I disagree with some of what you are saying here, but it’s beside the point I was making. I’ll just point out that you have made an argument here, but that your reference to “mood affiliation” doesn’t add any substance to it. All of the substance in your comment starts in the second sentence.

The Original D May 8, 2012 at 3:00 pm

“Mood affiliation” is an economist’s way of saying you’re being too emotional, and thus dismissing the entire article.

Also, the use of the word savage sets up a straw man.

Greek spending was cut by 14%. Savage? I wouldn’t go that far. But it certainly falls within the meaning of austerity.

Benny Lava May 8, 2012 at 7:25 pm

This is a joke, right? This is like “I know you are but what am I”. I mean I know you were upset when Ireland’s numbers came in bad but the motivated reasoning and overall petulance you are displaying is…disappointing.

Bernard Guerrero May 8, 2012 at 12:31 pm

“Also, where is Portugal, Ireland, Estonia, Latvia? Cherry picking much?”

Too small to bother with? Though I suppose Greece falls in that category, too.

Someone who is not as stupid as Miss de Rugy May 8, 2012 at 4:24 am

Aah, because the Nominal variables of an economy matter in the short run they must be the only thing that matters.

It is perfectly possible to have nominal government spending increase substantially while engaging in a lethal-self-defeating mix of spending cuts and tax rises (austerity is about both!) that reduces aggregate real output.

I make the point again, why is it no-one who pushes the this-ain’t-no-austerity doesn’t talk about contributions to growth/spending from final government purchases, surely you can dismiss that!

And of course it can work the other way, it is perfectly possible to have consistent (if sub-par) real gdp per capita growth while nominal gdp per capita goes nowhere (see Japan).

You accuse several different people with different outlooks attack the proposition of this post from different angles as “frame-switching”?
I’m sorry Mr against fiscal stimulus because central-banks-reasonably-omnipitant-at-controlling-nominal-variables/there are millions of workers who suddenly have ZMP for no reason/structural unemployment from somewhere/I haven’t really engaged with the power of balance sheet dynamics because I believe “we though we were wealthier than we were” is a supply-side problem/because of stagnation in wider growth/ confidence/trust in Governments (even though that can’t be measured or explained).

Okay you can believe in the above without any accusation of hypocrisy or inconsistency being true. But this post is part of a long line of you linking to crap “authorities” and sources to belittle almost any expansionary ideas in the developed world’s lovely internet age 1930’s emulation (its not like the long-run can be affected by the short-run or anything). I would be fine if it were Monetarists like Sumner or shell-shocked New Keynesians like Rogoff.

But the National Review and Robert Samuelson?

schtevie May 8, 2012 at 10:02 am

*ouch*

TallDave May 8, 2012 at 11:26 am

It is perfectly possible to have nominal government spending increase substantially while engaging in a lethal-self-defeating mix of spending cuts

Heh.

GiT May 8, 2012 at 4:09 pm

If you think that statement is necessarily inconsistent you can’t be very bright.

TallDave May 8, 2012 at 4:45 pm

If you think those circumstances apply here…

GiT May 8, 2012 at 6:51 pm

If you think statements about *logical possibility* are meant to describe empirical reality…

TallDave May 8, 2012 at 7:06 pm

If you think the chart that was the subject of his rant refers to logical possibility…

TallDave May 8, 2012 at 7:09 pm

I mean, really. Clearly we are talking about the EU here; this “logical possibility” has no relevance to any discussion of the EU. It’s a ridiculous statement and you’re just flailing at semantics. Bored with you again.

GiT May 8, 2012 at 7:52 pm

You’re begging the question. And that’s what’s boring.

The point of bringing up logical possibility is simply to show that showing, for example, an increase in spending is not sufficient for demonstrating that there has not been austerity policy, and that one must look at other data.

Now you are assuming that if you look more closely, you will see that there has been no austerity policy.

Others are assuming that if you look more closely, you will see austerity policy.

The way to resolve that conflict is not to say, “look at spending, it’s up.” It’s to look at a better measure of whether or not there is austerity policy (like, say, cuts in provision of welfare services, which is a thing, that is happening, in various countries in Europe.)

Andreas Moser May 8, 2012 at 5:00 am

I don’t understand this whining about “cuts” and “austerity” either. Governments are still spending more than they take in: http://andreasmoser.wordpress.com/2010/11/15/uk-budget-what-cuts/
It seems that somebody shouts “massive cuts” each time some bureaucrat’s wish for an increase in his budget is denied.

Andrew' May 8, 2012 at 7:01 am

It’s actually fine if the expectations that growth are founded upon required government spending to grow the sky, forever. However, this is an even more intuitively obvious case of unsustainability than deficits.

To me the recession is not a separate thing in which “we don’t want to also cut government spending.” The recession itself is caused by the unforeseen need for retrenchment (unforeseen because we didn’t already do it). I’d be fine with the government just gradually reducing negative return investments in favor of positive return investments. But this is lumped in with “AUSTERITY!!”

Doc Merlin May 8, 2012 at 8:40 am

+1000

dearieme May 8, 2012 at 5:02 am

Some of the criticisms of your plot seem remarkably dim.

John B May 8, 2012 at 6:00 am

While I do think that peripheral Europe needs a dramatic fiscal shake-up, I don’t think the graph Tyler shares is fair. Here is the same chart rescaled to 100 in 2002 for each country: http://pic.twitter.com/zLcaegaV

You can easily conclude that France hasn’t done anything to cut spending and at least argue that Britain hasn’t either (although once you allow for the 2008 series break, they have), but Greece, Spain and Italy *have* had large reductions in their spending relative to their pre-crisis trends.

RZ0 May 8, 2012 at 8:55 am

+1 Facts can be shrill things.

Colin May 8, 2012 at 9:25 am

Of those countries, only Greece has had large reductions. The UK and France have seen increased spending, Italy has flat-lined and Spain’s decrease — after years of big increases — is about 3%. Draconian cuts these are not.

John B May 8, 2012 at 9:48 am

It’s all relative…

Relative to their *levels* in 2009, you’re right; they’ve not cut much at all.

But relative to their *trends* in 2009, they’ve cut significantly. That is not nothing — if you’re travelling at pace and then suddenly stop (let alone go into full reverse), you’ll really feel it.

Ideally, what we really want to see is how much they’ve cut relative to their *nominal potential output* (an ugly phrase that arguably has no meaning in America or the UK, but does to some extent in these countries because their monetary policy and hence long-run inflation is being determined independently).

Doc Merlin May 8, 2012 at 10:13 am

“But relative to their *trends* in 2009, they’ve cut significantly”

Sorry, but the trend isn’t what matters here, the level is what matters

TallDave May 8, 2012 at 10:34 am

The problem with that is it’s like saying “I bought one new car in 2009, two new cars in 2010, and then I was planning to buy three new cars in 2011 but instead I only bought two, so I saved a lot of money in 2011.”

GiT May 8, 2012 at 3:50 pm

Or it’s like saying an accelerating car must start decelerating by first decreasing its rate of acceleration.

TallDave May 8, 2012 at 4:15 pm

Most people approaching danger hit the brakes rather than just easing off the accelerator a bit.

GiT May 8, 2012 at 6:55 pm

So? Doesn’t matter if to take your foot off the accelerator or brake: the first thing that will happen is that the rate of increase in your velocity will decrease. Having zero acceleration or having deceleration happens after that, if you start out accelerating.

TallDave May 8, 2012 at 7:15 pm

Yes, for the .25 seconds it takes to reach the brake.

Again with the lame semantics, I’m just not going to bother reading anymore, that seems to work better.

GiT May 8, 2012 at 7:53 pm

In case you hadn’t noticed, this whole thread is about what austerity means.

Semantics? Yes, duh.

GiT May 9, 2012 at 12:23 am

And if we really want to stretch the analogy, most people prefer a stop that begins with controlled deceleration, rather than one that goes straight for the breaks.

B May 8, 2012 at 10:19 am

Greece already had a huge government spending run-up before the crisis. And while I’d love to stabilize their aggregate demand by pumping in more government spending, they had already overextended themselves. Simple fact is, Greece isn’t as rich as they thought they were. They burned through most of their ability to spend their way out of a recession before a recession ever hit. If you want to stabilize their aggregate demand at an artificially high level (without leaving the Euro and sparking some inflation), you need permanent transfers coming in from Germany and the like.

John B May 8, 2012 at 10:33 am

I agree!

Here’s my first sentence again: “I think that peripheral Europe needs a dramatic fiscal shake-up”. If that wasn’t clear, I apologise — I meant it to mean exactly what you said, albeit in an abbreviated form.

My only point was to highlight the fact that, contra Tyler’s suggestion, they *have* cut spending, hard. They certainly needed to. They almost certainly need to cut further, too.

TallDave May 8, 2012 at 10:41 am

Greece, Spain and Italy *have* had large reductions in their spending relative to their pre-crisis trends

They are all spending more than in 2007. These are “large reductions?”

If you mean “they are no longer growing spending at 10% a year” of course this is true, but it is hardly the picture of austerity opponents painted.

B May 8, 2012 at 10:57 am

Can you throw Ireland into that graph? I’d like to see if their government grew on par with France and Italy during 2000-2007, then had a Greece style drop-off thereafter. THAT would an ugly cut. If Ireland did everything right with moderate government growth and still suffered horribly.

RG May 8, 2012 at 11:05 am

Because they backstopped the debt of their foolish banks.

Ricardo May 8, 2012 at 6:21 am

Tyler says, “The real question addressed by this post is how bad spending cuts have been in nominal terms…”

That’s fine but the question actually raised in the title of the post is “How savage has European austerity (spending cuts) been?”

Had the post been titled (so as to address “the real question”) “How savage have European nominal spending cuts been?” there would be no cause for complaint because few informed commentators have ever suggested there have been large nominal spending cuts in the countries listed above. The problem is the casual way in which “austerity” is being conflated with “nominal spending cut.”

Bill May 8, 2012 at 6:35 am

Can you explain Tyler’s defense of bad statistics and response as an example of mood affiliation?

Everything seems to be mood affiliation.

Andrew' May 8, 2012 at 6:55 am

That’s not it Bill. Decompose. If “Austerity” = A+B+C+D+spending cuts and spending cuts = ~0 then the point is to focus on A, B, C, and D.

Wouldn’t it be comicallly ironic if voters only listened to Austrians during recessions and only listened to Keynesians during booms. Kind of like O’Henry economics.

Bill May 8, 2012 at 8:09 am

Your comment is shrill and just reflects mood affiliation, so I don’t have to respond to it.

figleaf May 8, 2012 at 12:01 pm

Comical? Isn’t that more like the status quo?

It’s one of the reasons I think it’s dumb to criticize either pure Austrian or pure Keynesian policies — there just aren’t enough examples of them being consistently used to make the determination.

But yeah, doing Austrian during recessions and Keynesianism during booms is about as bad as it gets (in the post-War industrial West, anyway.)

figleaf

aaron May 8, 2012 at 1:21 pm

+1

UnlearningEcon May 8, 2012 at 7:06 am

It’s almost as if large departmental cuts increase welfare expenditure, and a large part of government spending is endogenous and out of control of governments in the short term…

TallDave May 8, 2012 at 8:31 am

a large part of government spending is endogenous and out of control of governments

Heh.

Doc Merlin May 8, 2012 at 8:41 am

There were large departmental cuts?

Oderus Urungus May 11, 2012 at 2:13 pm

Hey fuckwad:

…………../´¯/)
…………./¯..//
…………/….//
……/´¯/’…’/´¯¯’)¸
…/’/…/…./……./¨¯\
.(‘(…´…´…. ¯~/’…’)
..\……………..’……/
…’\……………. _.·´
…..\……………(
……\……………

Colin May 8, 2012 at 7:23 am

These criticisms of Cowen/de Rugy strike me as pretty weak. To address a few of them:

* Failure to account for inflation/population growth. I don’t think this changes the picture radically. Given the considerable run-ups in spending, this would merely flatten the curve at most. I don’t think it would turn it negative and certainly not sharply negative as the outcry over alleged deep austerity would suggest. Greece, the country with the least pronounced spending curve, only saw population growth of around 3% during this time.

* Failure to include Portugal, Ireland, Estonia or Latvia. Rather than cherry picking, my guess is that the chart doesn’t include these countries because they are not major economies (the GDP of Catalonia alone is bigger than Portugal). Granted, neither is Greece, but considerable the massive attention it has received as an alleged poster child of austerity its inclusion makes sense. Also, given that both Latvia and Estonia have seen sharp drops in their unemployment rates, they hardly provide ammunition to the anti-austerity crowd and there is no reason to exclude them in order to score points.

* Cherry picking the time frame. The chart goes back either 9 or 10 years. This doesn’t strike me as very arbitrary, and I am unaware of any sharp drop in government spending in the early 2000s in the face of a mild recession that would explain the subsequent run-up as a return to normalcy.

* Failure to account for taxes as part of austerity. This criticism is more reasonable, but one of my biggest frustrations with the austerity debate — one I suspect de Rugy shares — is that the casual observer could be forgiven for thinking that austerity=deep budget cuts exclusively based on most of the rhetoric. In fact, while tax hikes have played a big role in European budget balancing, all we seem to hear about are budget cuts, which are then blamed for the sputtering European economies. Paul Krugman, while constantly railing against austerity, seems rather pleased in his latest column about the election of Hollande, despite his pledge to hike the top marginal income tax rate to 75%.

In fact, given that — as this chart illustrates — the deep budget cuts are mostly illusory, if one wants to blame the current European economic crisis on the consequences of fiscal measures, then one should logically blame tax increases.

Yancey Ward May 8, 2012 at 12:00 pm

The only comment in this thread worth reading.

Bernard Guerrero May 8, 2012 at 12:38 pm

+1

Ray Lopez May 8, 2012 at 9:25 pm

“In fact, given that — as this chart illustrates — the deep budget cuts are mostly illusory, if one wants to blame the current European economic crisis on the consequences of fiscal measures, then one should logically blame tax increases.”

Who every said that deep budget cuts were made? I guess that was the strawman that set off this flame war. Typical economist-speak: set up a scarecrow then knock it down.

Hal McClure May 8, 2012 at 3:26 pm

See http://www.economist.com/blogs/freeexchange/2012/05/euro-crisis-0

It does change the argument – a lot!

Colin May 8, 2012 at 3:43 pm

Not really. The post gets pretty well picked apart in the comments section.

TallDave May 8, 2012 at 7:32 am

Given the rhetoric on “austerity” this is really a pretty incredible graph.

What would be even more incredible would be to plot countries’ GDP on the same chart, or the % of GDP that is gov’t spending, because the implication is gov’t spending is a siginficantly larger % of GDP than was the case before the recession began.

That, plus the fact this implies “austerity” has mostly been about raising taxes not cutting spending, causes severe problems with the many, many assertions that austerity can’t work because gov’t spending cuts mean GDP to shrink — in truth, spending cuts haven’t even been tried yet!!

Rather than “solvency (austerity) failed” the results seem to actually say “tax hikes are bad for GDP growth, and so is having gov’t grow as a $ of GDP.” In short, an empirical victory for free marketers.

TallDave May 8, 2012 at 7:34 am

(sorry for the bad tag)

Given the rhetoric on “austerity” this is really a pretty incredible graph.

What would be even more incredible would be to plot countries’ GDP on the same chart, or the % of GDP that is gov’t spending, because the implication is gov’t spending is a significantly larger % of GDP than was the case before the recession began.

That, plus the fact this implies “austerity” has mostly been about raising taxes not cutting spending, causes severe problems with the many, many assertions that austerity can’t work because gov’t spending cuts mean GDP to shrink — in truth, spending cuts haven’t even been tried yet!!

Rather than “solvency (austerity) failed” the results seem to actually say “tax hikes are bad for GDP growth, and so is having gov’t grow as a $ of GDP.” In short, an empirical victory for free marketers.

Doc Merlin May 8, 2012 at 7:41 am

‘Rather than “solvency (austerity) failed” the results seem to actually say “tax hikes are bad for GDP growth, and so is having gov’t grow as a $ of GDP.” In short, an empirical victory for free marketers.’

THIS.

JJ May 8, 2012 at 7:43 am

According to the OECD data, Ireland cut its government expenditure by 27.7 % from 2010 to 2011 and Greece cut its government expenditure by 8.4 % (in real terms). But I presume that pointing this out is just ‘frame switching’.

TallDave May 8, 2012 at 7:52 am

Re Ireland, Tyler has said “there are particular small countries which have made serious spending cuts, in the Baltics most of all.”

Re Greece, are those true cuts or are they to projections (i.e. baseline cuts)? Do you have a link? Does your source include all levels of gov’t like the above graph?

JJ May 8, 2012 at 8:01 am

I just followed the links in Tyler’s post to Miss Ruqy’s post. She provides a link to a data file. I do not know whether the data for 2011 are actual numbers or projections.

By the way, the data also shows that government expenditure in the European Union as a whole was cut by 3.0 % from 2010 to 2011 (again in real terms), in the UK by 3.9 %, in Spain by 5.2 % etc. So this story about ‘particular small countries’ does not hold water.

TallDave May 8, 2012 at 8:13 am

Yes, but Greece and Spain also increased spending by ~10% in 2006, 2007, 2008 and 2009. That’s 10% every year.

The EU as a whole also increased spending by more than 3% in those years.

To even get back to 2005 levels appears to require a cut of somewhere around 25%. “Austerity” apparently means rolling back just six months of the spending increases.

GiT May 8, 2012 at 12:57 pm

Um, Tyler just said the focus is on nominal numbers, not %GDP. And turning to %GDP doesn’t exactly help the case.

Britain:

http://www.ukpublicspending.co.uk/spending_chart_1980_2015UKp_11c1li011mcn_F0t

Complaining about tax hikes also conflates arguments – are you concerned with solvency or with decreasing government spending? Debt repayment is government spending. The two are in competition, though of course if you cut other forms of G enough you can manage to do both.

TallDave May 8, 2012 at 1:57 pm

Yes, I just thought % of GDP was interesting because of the negative correlation to growth I’m always going on about.

Someone was kind enough to post the numbers:
http://epp.eurostat.ec.europa.eu/tgm/refreshTableAction.do?tab=table&plugin=1&pcode=tec00023&language=en

IMHO the difference between tax hikes and spending cuts is that while there is generally always some decreased level of spending that is sustainable, there is not always an increased level of taxation that can support the current levels of spending — i.e. it is always possible to spend more than you can possibly tax. This is probably a major reason why studies find that the reform packages that work tend to be biased about 5:1 in favor of spending cuts.

Aidan May 8, 2012 at 8:12 am

“Second, I wish anti-austerity critics would start acknowledging that taxes have gone up too–in most cases more than the spending has been cut.”

What does she think austerity is? What does she think fiscal stimulus is? This is mind-numbing.

Doc Merlin May 8, 2012 at 8:45 am

Austerity is sold as cuts in spending combined with tax increases. There were no appreciable spending cuts (something only the left says is bad for the economy). This means it was just tax increases, something that BOTH sides say is bad for the economy.

What we have is just increases, not actual austerity.

Benny Lava May 8, 2012 at 8:44 am

Talk about “mood affiliation”! Tyler posts a graph showing that the worst economies in Europe have cut spending and then tries to claim it shows the opposite! The two worse economies in the Euro are Greece and (conveniently omitted) Ireland. They also have the most austerity in their budgets. And this is supposed to be evidence for austerity as a policy recommendation? You guys are starting to turn into snake handlers. Just look at the evidence and follow where the evidence leads you!

RG May 8, 2012 at 8:53 am

Isn’t Spain’s economy worse than Ireland’s? Ireland has at least seen a leveling out. Greece’s problem is a lack of competitiveness, while Spain has ballooning public debt because of the housing bubble.

TallDave May 8, 2012 at 10:56 am
Benny Lava May 8, 2012 at 7:32 pm

And this proves what? That you are innumerate? That you engage in snake handling motivated reasoning? You already demonstrated that you are a liar when you claimed that there were no spending cuts, so I am unsure what to make of your post other than an example of mood affiliation causing you to dismiss numbers. How churlish.

Manuel May 8, 2012 at 9:07 am

I’m sorry, but this is simply so much noise. What on earth is this graph measuring in the Y-axis? Anything meaningful? Why don’t you measure “austerity” by cycle-adjusted public deficit? Maybe because the graph would not support the interpretation? Just saying.

Douglas May 12, 2012 at 5:49 pm

I agree. Looking carefully at the graph, you can see it is a bit manipulative. The data is flattened out to minimize the most current change.
Also, it still shows that the countries with some of the largest budget cuts are also still doing the worst. This doesn’t suggest to me that austerity is a success.

Ricardo May 8, 2012 at 9:12 am

Colin, Greece’s CPI went up 37% between 2002 and 2011 so I don’t know how you can make a statement like “Failure to account for inflation/population growth. I don’t think this changes the picture radically.”

I haven’t been following events in Europe that closely so it is possible I am not looking at the right data — I pulled the data off of this website: http://www.inflation.eu/inflation-rates/greece/historic-inflation/cpi-inflation-greece.aspx

I don’t have time to check the other countries but clearly taking into account things like inflation, population growth and other such things have the potential to radically alter the way we interpret the numbers provided at top. Since Ms. de Rugy did not provide this information, it is not clear what value her graphs add. By themselves, the only thing they show is that nominal spending is higher now than it was 2002 — something just about every informed person could have guessed.

TallDave May 8, 2012 at 10:58 am
Ricardo May 8, 2012 at 11:20 am

I’m well aware of that fact. I’m not sure what your statement has to do with the apparent fact that the price level in Greece increased by 37% between 2002 and 2011.

TallDave May 8, 2012 at 11:35 am

It means the Euro countries are going to have similar rates of inflation, because they can’t print money.

I believe the data in Tyler’s other link is in real dollars. It doesn’t look much different.

OGT May 8, 2012 at 3:53 pm

Prices in the Eurozone have not been moving at the same place. Prices in Spain, Portugal, Greece and Ireland started off significantly lower than those in France or Germany, but have been converging (ie rising faster) ever since the adoption of the Euro. Hence

So, no there isn’t one inflation rate in the Euro zone. Or the US for that matter because local real estate markets and labor markets change at different rates in response to economic conditions.

TallDave May 8, 2012 at 4:18 pm

Like the EU, U.S. states have similar rates of inflation. They tend to vary around the mean.

GiT May 8, 2012 at 8:21 pm

Countries the world over also have mostly similar rates of inflation that tend to vary around a mean.

Rates in the Euro area run from 1.4% to 4.9%

http://www.global-rates.com/economic-indicators/inflation/inflation.aspx

Fallacy of division sure is popular today.

Peter Whiteford May 8, 2012 at 10:00 am

gdp5 of These points have been made above, but it is worth reiterating that no serious comparisons of trends over time (in any measure of government spending, taxation etc) in different countries would use nominal values as the basis of comparison.

Any standard international comparison would use spending as a per cent of GDP. You can of course easily get this from Eurostat at http://epp.eurostat.ec.europa.eu/tgm/refreshTableAction.do?tab=table&plugin=1&pcode=tec00023&language=en

What this shows is that between 2009 and 2011 spending in France fell by a bit less than 1% of GDP, but that in the other countries shown in the figure at the top of this post spending fell by between 2% of GDP in Italy and 3.7% of GDP in Greece.

Spending fell in these countries at a time when unemployment is at long-term highs (and increased in the Euro area between 2010 and 2011) and when public debt interest payments have also increased.

Now what this means is that spending on non social security/non interest payments has fallen by even more than the figures given at the Eurostat link. This means that spending on public services and public employment has fallen by even more.

Now anyone can argue that they think that spending needs to fall by even more because of the increase in spending in earlier years, but this does not mean that austerity is not real.

Now I’m not convinced that we are talking about deep austerity in the case of France and Italy, but anyone who thinks that Sapin and Greece are not experiencing deep austerity needs their head read.

Doc Merlin May 8, 2012 at 10:15 am

“but anyone who thinks that Sapin and Greece are not experiencing deep austerity needs their head read.”

Are they still spending more than revenues?

TallDave May 8, 2012 at 10:30 am

It also shows that gov’t spending in 2011 is higher as a % of GDP than 2004 across the EU — Greece and Spain are about 10% higher. I don’t remember 2004 as being an era of terrible privation.

anyone who thinks that Sapin and Greece are not experiencing deep austerity needs their head read.

“Who are you going to believe, me or your lying eyes?”

Michael Finn May 8, 2012 at 12:35 pm

You do realize that not all the government spending is equal? That simplistic charts such as the one this post started are complete nonsense because they do not take a look at the underlining data?

Those governments had to rescue their banks and are spending a LOT of money to keep them afloat. They are cutting back drastically in their social spending, Greece has turned themselves into a third world country.

http://www.guardian.co.uk/world/blog/2012/mar/15/greece-breadline-hiv-malaria

“The incidence of HIV/Aids among intravenous drug users in central Athens soared by 1,250% in the first 10 months of 2011 compared with the same period the previous year, according to the head of Médecins sans Frontières Greece, while malaria is becoming endemic in the south for the first time since the rule of the colonels, which ended in the 1970s.”

They are literally killing themselves to provide the austerity and here you are telling us that they aren’t even trying because you refuse to look at the underline data.

TallDave May 8, 2012 at 12:49 pm

The data that should be underlined is they are spending more money than in 2007.

Greece was always a Third World country, the problem is they thought they could spend like a First World country. That isn’t the fault of the banks.

dead serious May 8, 2012 at 2:35 pm

Why do you keep throwing around 2007 as if it is some agreed-upon target year? If/when they reduce to 2007 levels, I fully expect you to keep true to your mindless crowing that they’re still spending more than in 2006. Repeat ad nauseum.

TallDave May 8, 2012 at 3:02 pm

2007 was the year before the recession.

If they had cut to, say, 1994 levels of spending, then we could probably agree there had been quite severe cuts. As it stands, they are still spending more than the last year before the recession.

dead serious May 8, 2012 at 9:11 pm

Who put you in charge of deciding that the year just before the recession is the optimal target? Just curious.

I guess things like inflation, population growth, etc. don’t factor into your “math.”

Seriously deluding yourselfs May 8, 2012 at 11:20 am

This is beyond ridicolous, the graphs are simply enough and show that basically no proper spending cuts have taken place. In order to fight this some people come up with all sorts of weird objections such as “if you look at the 2nd degree of local spending growth relative to NGDP absent population growth then you will see that spending has been cut dramatically!”

Get real people, otherwise you will lose your minds in the upcoming rebalancing of world economic wealth.

tt May 8, 2012 at 11:51 am

Push ‘em back! Push ‘em back! Rahhh Team R!!!!

Meets May 8, 2012 at 12:11 pm

Mood affiliation comment.

Ross May 8, 2012 at 11:56 am

So, is “austerity” just becoming an unfactual, political tool being shoved down our throats?

If we can just simplify this in the best way possible – is Europe going through “austerity” or are the countries actually spending more than before?

The constant political battle is nauseating beyond bathroom relief. I just want the truth.

Ricardo May 8, 2012 at 12:00 pm

The problem is that your premise is incorrect.

I checked my number against Eurostat’s “Harmonized Indices of Consumer Prices”: Germany’s price growth between 2002 and 2011 was 18% while Greece’s was 39%.

Steven Kopits May 8, 2012 at 1:46 pm

Yes, Ricardo, that’s precisely why Greece is uncompetitive. So you need to either reduce internal wages in Greece by 21% to get in line with Germany, or you drop the Euro, default and devalue. And then you get real austerity, in part resulting from loss of access to credit markets, in part from devaluation. Ideally, Greece should have done this two years ago. Unfortunately, this also means, I think, that Greece really falls out of the EU in important ways. The stabilizing effects of Euro membership will be lost. Germany might have thought about this point a little harder before admitting Greece into the Euro zone.

figleaf May 8, 2012 at 12:12 pm

“I wish anti-austerity critics would start acknowledging that taxes have gone up…”

Is Rugy for real? I guess maybe some of the hereditary-peer Socialists she bumps into at soirees don’t make the connection but I’m… pretty sure most serious, non-posh Keynesians believe tax increases during recessions and depressions are as counterproductive as spending cuts.

figleaf

TallDave May 8, 2012 at 1:00 pm

When I listen to current discussions of the federal budget, the message I hear sounds like this: We’re in crisis! We must take drastic action immediately! And we must keep taxes low, if not actually cut them further! You have to wonder: If things are that serious, shouldn’t we be raising taxes, not cutting them?

SPOILER ALERT: Krugman’s answer is yes.

http://www.nytimes.com/2011/04/25/opinion/25krugman.html

Is there actually a Krugman column where he clearly opposes tax hikes in any situation? Surely there must be one somewhere.

Bender Bending Rodriguez May 8, 2012 at 4:52 pm

Maybe he’d oppose a tax on bad SciFi that glorified central planning…

Careless May 8, 2012 at 6:58 pm

Hey, the first two Foundation books are perfectly fine.

JCW May 8, 2012 at 12:25 pm

So, based on this data, it looks like even very mild spending reductions have had disproportionately bad impacts on European economies, suggesting that “real” austerity (meaning, “much more drastic cuts in gov’t. spending”) would cause those economies to spiral into total disaster. Am I reading that correctly?

If economies are currently biased towards recession as strongly as this data suggests, doesn’t that buttress the argument of Krugman, et al, against austerity in the short term? People in these countries are clearly feeling something, as demonstrated by both political (voting) and social (rioting and/or protesting) actions against their governments. It’s hard for me not to look at this data and conclude that if small cuts have helped cause this many problems, then “real” austerity would bring a full-on replay of the Great Depression, with the accompanying massive, possibly frightening levels of upheaval and instability in the affected nations.

I’m not sure that I totally agree with that interpretation (I tend to think that a lot more factors are involved in determining the scale and timing of growth or recession), but I’m having a hard time seeing how it is not the simplest, most logical way to read the data.

TallDave May 8, 2012 at 12:54 pm

Overall, spending is actually higher. Taxes are much higher.

What this says is that Krugman’s argument is based in false premises — there have not been any large spending cuts, so we can’t know what the effect of large spending cuts might be. We can say that tax hikes and levels of spending that flirt with insolvency have not produced good outcomes thus far.

We do know it is possible to massively reduce gov’t spending without causing a depression — see the U.S. demobilization after WW II, transitions from Communism, etc.

JCW May 8, 2012 at 2:22 pm

I’m just eyeballing the chart without perusing the numbers, but the lines for the UK and Italy appear to be flat or close to it. The lines for Spain and Greece appear to slope down. Only France’s line continues a seriously upwards trend. So spending is lower in four of the five countries on the chart. Not a lot lower, but lower (or the same). I’m pretty sure that I remember hearing on the news that the UK, Italy, Greece, and Spain are all in recession, and that only France is still experiencing GDP growth at this point. That correlation would seem, on its face, to suggest that government spending wards off recession, and flattening or reducing it has the opposite effect.

Correlation is not causation, of course. And I should stipulate that I don’t follow Krugman all that closely, so maybe I have him wrong. But as I understand it, his argument is that reducing government spending hurts the economy in the short term, and increasing government spending stimulates the economy in the short term. I have a hard time seeing how this graph refutes that notion. The long-term results of such policies, obviously, raises a much more thorny issue.

As a total side-note, I’m a little confused by your mention of transitions from Communism as examples of reducing gov’t spending without causing a depression. The ones I immediately think of are East Germany, which was essentially propped up by massive spending from West Germany, and China, where the government did (and does) spend massively to control currency value and build infrastructure. In both cases, the transition was eased by massive government spending.

Ditto, I think, for the post-war U.S., which spent a lot of money on things like the G.I. Bill, the housing loan underwriting programs, and so on. It was not anything like the level of spending reduction that happened with demobilization after World War 1, which coincided with a recession that lasted until 1922 (and seems to go in the opposite direction from the one that you are suggesting).

Maybe a better example would be the Clinton years? If I remember correctly, tax rates went up and government outlays dropped during that period, and the economy continued to tick along pretty solidly, despite the dot-com bust towards the end.

TallDave May 8, 2012 at 3:09 pm

Overall EU spending is higher, there’s a link above. Also, if these countries were growing they would not have to cut — this is a bit like arguing there’s a clear correlation between avoiding hospitals and staving off illness.

In both cases, the transition was eased by massive government spending.

Gov’t spending was reduced from 100% of GDP to something less.

It was not anything like the level of spending reduction that happened with demobilization after World War 1

This is not remotely accurate. http://www.usgovernmentspending.com/us_20th_century_chart.html

JCW May 8, 2012 at 7:32 pm

Thanks a lot for that link. I had not stumbled over that particular data aggregating site before, but I’ll definitely add it to my list of useful places for historic government numbers and charts. But according to those numbers I remembered, in fact, quite accurately: government spending, while it certainly fell following the war, remained at New Deal and higher levels that almost equaled (and by the ’50s, surpassed) the old records set during the first World War. In other words, a huge drop, but nothing like what happened after WW1. As your link makes clear, we haven’t returned to those (post-WW1) spending levels, well, ever, at least not yet.

I also think you are making a mistake to argue that overall spending in the EU zone should counterbalance government spending choices in any particular country. Although it uses a single currency, the zone is not set up as a single economy (to, I think, its great detriment). Given that the zone frames itself that way, I think you have to take them at their word–austerity for Greece means spending cuts in Greece, even if spending increases in France.

Benny Lava May 8, 2012 at 7:41 pm

Oh that Tall Dave won’t acknowledge the argument you are presenting because of mood affiliation. So instead he will try to change the subject to Europe as a whole, European nations not on the Euro, spending levels several decades ago, or world war 2. Anything to avoid the logical conclusions one might take from reading a simple graph: austerity in the form of spending cuts has not caused growth.

Careless May 8, 2012 at 10:19 pm

Jebus, Benny, you’re really going the full self-immolation here. Take a deep breath and acknowledge it: spending has not been slashed.

Benny Lava May 9, 2012 at 8:44 am

You have a terrible case of mood affiliation I see. Hopefully it will clear up enough that you can one day read a simple graph. Cheers.

Peter Whiteford May 8, 2012 at 6:54 pm

Following the transition from Communism, real GDP in the Russian Federation fell by about 45% between 1990 and 1998 see http://www.oecd.org/document/63/0,3746,en_2649_33933_2345279_1_1_1_1,00.html

CEE countries lost 22.6 of their GDP in the initial phase of output decline, which lasted on average 3.8 consecutive years (only 2 years in Poland, 3-4 years in Hungary, Czech Republic and Slovak Republic and 5-6 years in the Baltic States) (The World Bank, 2002)

Meegs May 8, 2012 at 12:29 pm

What does the market reaction today say about potential anti-austerity economic policy in Europe?

chuck martel May 8, 2012 at 1:29 pm

OK, a reduction in or stability in government spending is “austerity”. If this is having a negative effect on life in general then the answer has to be MORE government spending, the problem is getting the money. Since the Greeks and Spaniards supposedly can’t print their own, they’re going down the tubes. Why should this be? Can’t they stay on the Euro for international trade and use the drachma and peseta for their domestic transactions? Let the Greek government pay retirement benefits to 45 year old pencil pushers with freshly printed paper drachmas with Melina Mercouri’s picture on them.

LL May 8, 2012 at 1:30 pm

“If economies are currently biased towards recession as strongly as this data suggests, doesn’t that buttress the argument of Krugman, et al, against austerity in the short term?”

You must be joking. The whole last decade was a Krugman experiment of heating the economy by overregulation -let’s drop the interest to have alot of credit everyone build second home and the second Lisboa-Porto Highway- here in Europe -I am Portuguese- and you say you want more ?

Don’t tell me you think real growth exists if a country have a Gov. deficit of 5% and the country has 2% growth. How do you pay the remaining 3% plus interest?

TallDave May 8, 2012 at 4:40 pm
GiT May 8, 2012 at 1:31 pm

If using real numbers and adjusting for population/rGDP growth are controversial ideas, I’m not really sure what the point is. If we can’t even do basic things like that, other quite reasonable proposals, like factoring out non-discretionary countercyclical spending or government spending on debt repayment clearly aren’t going to pass either.

If we take austerity in a particularly narrow view as structural reforms to government spending on infrastructure, public goods, and social welfare meant to decrease the scope of regularly provided government services, then it should be relatively clear how to figure out if austerity is occurring.

If one wants to focus on austerity-as-solvency, then one must add to this focus on government spending on welfare a focus on government debt repayment, with the net effect of changes in government spending between these two factors being a potential wash, depending on whether or not debt repayment out-strips welfare spending cuts.

What should be clear is that one should focus on changes driven by present policy changes. Non-discretionary increases (like increased UE claims) should be out.

This seems to me a rather benign (and accurate) specification of what austerity policy is supposed to be about. But no, asking that we actually measure what we’re talking about rather than using inaccurate, inapt proxies is out of order.

Hopeless.

LL May 8, 2012 at 1:37 pm

The Austerity only starts when people start to reduce the debt, not when the debt increases less faster.

It is amazing that austerity ballpark today is with Governemnt deficits of 7, 8 , 9 ,10%…. So 8% of GDP borrowed is Austerity now?! 16% of expenditure for a Gov ernment that is 50% of whole GDP which is the typical value of OECD.

What will be expansion 15% or 20% Gov deficits? Since the Gov is roughly 50% of economy that means that 30-40% of all Gov expenditure is to be borrowed?

And the return? You will be happy 3% growth GDP ? for a deficit of 15% GDP? How do you pay that?

GiT May 8, 2012 at 3:15 pm

“Austerity only starts when people start to reduce the debt, not when the debt increases less faster.”

Austerity policies reduce deficits, spending, benefits, and services. They don’t necessarily reduce debts.

TallDave May 8, 2012 at 3:25 pm

Or spending, apparently.

GiT May 8, 2012 at 4:17 pm

You want to reduce debts? Increase government spending on debt repayment.

Wait, what did I just say? You can both reduce debts and increase government spending? But that’s impossible.

Don’t be simple.

TallDave May 8, 2012 at 4:25 pm

Heh, you think these countries are repaying debt? Really?

GiT May 8, 2012 at 5:14 pm

Conceptual analysis. Try it out sometime. Note that I said *necessarily*. Where did you get the idea I was talking about what is or isn’t happening? I’m talking about what words do or don’t mean, and what sorts of realities are compatible with the use of a given concept.

You keep on making statements that certain realities aren’t compatible with austerity policy occurring. But they are logically compatible. So closer analysis is needed – the kind of analysis you can’t get by simply looking at %GDP or nominal GDP. Those only support your point if you assume the evidence which needs to be demonstrated. We *know* (nominal) spending has gone up – the data is right there. We have prejudices, but not data, about what has caused that increase in (nominal) spending.

TallDave May 8, 2012 at 5:54 pm

Apparently, you missed the word “apparently.”

Doc Merlin May 8, 2012 at 7:58 pm

You are incorrect.

Debt repayment is debt neutral if not done from surpluses. If it is done from surpluses then it it decreases /NET/ debt.

Don’t be simple.

GiT May 8, 2012 at 8:39 pm

What does that have to do with anything?

Raise revenues (tax increases, those things de Rugy thinks aren’t austere), decrease net debt. All without decreasing spending.

A policy to increase taxes so as to increase the current level of debt repayment is, relatively, a policy aiming at austerity/solvency, regardless of what other policies are doing with respect to net debt.

Let’s stay away from fallacies of division and composition. A group of policies which have the net effect of raising net debt may nonetheless be composed of numerous policies which aim at solvency, and the effects of those policies may be the visceral experience of austerity.

Careless May 8, 2012 at 9:04 pm

I’ve found TallDave’s amusement at this thread pretty entertaining.

GiT May 8, 2012 at 5:39 pm

Further, I should have been more precise here as well: austerity policies can reduce deficits, spending, benefits, or services. It need not do all of those things.

If we take your solvency distinction (which I think is useful, and which I impllicitly brought up/made in my first comment on the thread with a distinction between contractionary fiscal policy and government reduction policy), then we could be even more precise:

Solvency policy: policy which aims to decrease debts. (But nota bene: deficit reduction (not elimination) is a way of decreasing projected debts. It can be a solvency policy)

Austerity policy: decreasing government spending on welfare/entitlement/public-good policies (to go to the root, the whole goal of austerity policy is to replace state-coddling with harsh market discipline).

Now note: Solvency policy can be consistent with increased spending on welfarist policies. And austerity policy can be consistent with increased government spending or increased deficits over-all, as long as structural reform is occurring in the right place (simple example: one can engage in austerity policy while in a war. In fact one often does. But wars generally see debt and spending go up) Further, austerity policy can be, but need not be, part of solvency policy. And vice versa – solvency policy can be, but need not be, part of austerity policy.

As it stands “the right” is calling for both solvency and austerity policy. And austerity policies are occurring, unambiguously, in a lot of places (remember our definition). Now it is debatable whether those austerity policies are part of a program for successfully achieving solvency. At the very least, in most places they are not increasing insolvency. When previous projections anticipated increasing insolvency, that is solvency policy. Not becoming more insolvent is the first step to becoming solvent.

Clear, precise definitions. See how much they help? Is it so much to ask for conceptual clarity? For specifying the data that could actually tell us whether something is or isn’t happening, and looking at that data rather than red herrings?

GiT May 8, 2012 at 6:58 pm

What a disingenuous response. Unsurprising.

dead serious May 8, 2012 at 9:19 pm

^ can’t seem to read a graph that a 3rd grader would have little difficulty in understanding.

I’d call whatever community college issued you your Associates degree and demand a refund.

dead serious May 8, 2012 at 9:20 pm

That was meant for TallDave in response to:

“Or spending, apparently.”

LL May 8, 2012 at 3:49 pm

The only logical definition for Austerity is when you pay back the debt.

Not when your credit card is only reduced in the level of new debt.

GiT May 8, 2012 at 4:16 pm

Definitions are often conventional, not logical. Look up the conventions.

You want to talk about decreasing debt? Debt reduction. There’s a phrase. Use it. We’re talking about austerity. Look it up. Debt reduction policy /= austerity policy

GiT May 8, 2012 at 4:26 pm

Actually, I should be more careful. Austerity policy is not debt reducing policy (Policy which reduces debt). (But also vice versa – If surpluses are big enough, one can reduce debt without engaging in austerity). Debt reduction policy may begin with deficit reduction policy (which can be austerity policy).

TallDave May 8, 2012 at 4:34 pm

Yep, the usage of “austerity” has gotten pretty ridiculous. The actual definition of “austere” is “Having no comforts or luxuries; harsh or ascetic.” It’s not like these gov’t’s are taking a vow of poverty, hell they aren’t even living within their means, let alone below them.

That’s why “solvency” is a much better word. If you can repay your debt, you are solvent. And what the bond markets want (which is really what this is all about) is to be repaid.

GiT May 8, 2012 at 5:23 pm

Austerity policy isn’t austerity.
Solvency policy isn’t solvency.

Austerity policy aims to produce austerity (if free marketeers are right, austerity policy will actually produce prosperity though, yes?)

Solvency policy aims to make a country solvent. A country can be getting statically more insolvent but dynamically more solvent – if you’re accelerating, the first step to going into reverse is to decrease acceleration. Then to decelerate. Then to stop. Then to go in reverse.

Insofar as government spending decisions are discrete and not continuous, things need not proceed in that manner. But they can, and still be policy oriented towards solvency. In order to know, you have to look at the process over time, not the state of affairs at a given point in time.

TallDave May 8, 2012 at 6:01 pm

I don’t think any policy “aims” to produce austerity — it’s not like any of these governments are taking a vow of poverty for the sake of spiritual cleansing or whatever. The only aim is solvency. “Austerity” is just branding — ooh, look how austere our budget is! We’re really serious! Give us more money, bond markets!

GiT May 8, 2012 at 7:00 pm

Am I supposed to believe that it is not widely accepted policy among conservative and libertarian circles that the school of hard knocks makes people more prosperous?

Short term austerity for long term prosperity. Of course governments aim to be austere. It makes the poor better (or so it’s said.) They’ll thank you when they’re older.

LL May 8, 2012 at 10:28 pm

You are wrong in everything GiT.

Then why don’t the word “Austerity” HAVE NOT BEEN IN MEDIA every time a Government hikes taxes, fees?
Pretty much since decades since the State have been increasing in all Western World.
But it is only “Austerity” when it touch the money politicians take from society?

Explain that to me.

GiT May 8, 2012 at 11:28 pm

Because of a distinction I’ve made (and TallDave has supported) earlier – between austerity policy and solvency policy. Austerity is typically associated with forcing worse living circumstances on the poor. Hence the use of the word “austere”.

Austerity IS used if you hike taxes on the poor and increase regressive taxes, like the sales tax.

Meegs May 8, 2012 at 2:28 pm

Why does the market think that the anti-Austerians will be contractionary for the economy?

Rich Berger May 8, 2012 at 2:50 pm

Alex-

This cannot be so. Paul Krugmann has already debunked this myth. QED.

Stephen May 8, 2012 at 5:07 pm

Basic accounting fail. These numbers are cash basis. They would need to be converted to accrual basis to have any meaningful comparison. A large portion of these expenses are for past service.

TallDave May 8, 2012 at 6:06 pm

Heh.

Doc Merlin May 8, 2012 at 8:01 pm

In accrual bases the numbers look even worse, because debt to GDP ratios are insane using accrual basis.

Oh Oh Oh May 8, 2012 at 5:20 pm

if you are an economist and you write an article on austerity and you fail to normalize your numbers for population growth, inflation and, possibly, GDP, you are either deliberately try to mislead, or you are not a very careful researcher. I mean if those things do not change the graphs, then why not use them anyway to make the point even more salient? Laziness ?
I mean I find it ridiculous. My guess is, the adjustments do change the graphs quite a bit at eurozone inflation levels of at least 2%.

You also need to normalize for aging population ( which leads to more healthcare spending by default ), but I am willing to leave that aside.

TallDave May 8, 2012 at 6:05 pm

The bond markets only care how much you’re spending.

At any rate, Tyler linked a table in current dollars, and you can see it makes very little difference. You can find the % of GDP numbers in the comments, which also look bad.

Oh oh oh May 8, 2012 at 6:57 pm

He linked to numbers in US dollars not in euros
The relevant benchmark is to keep it all in euros
Also need to adjust the numbers for population growth
There is no reason not to do that, unless you are trying to mislead

TallDave May 8, 2012 at 7:02 pm

The bond markets do not care what your population is.

Oh oh oh May 8, 2012 at 7:55 pm

Nobody knows what they care about, hence the absence of bond vigilantes, treasury yields hit 1.83 today

Doc Merlin May 8, 2012 at 8:03 pm

@Oh oh oh:

This is because the Fed is buying the /majority/ of US debt.

Oh oh oh May 8, 2012 at 9:03 pm

Doc Merlin: Fed WAS buying the newly issued debt, mostly longer term debt. Most of the outstanding stock of 10yr treasuries is in private hands. Furthermore, Fed’s operation twist is over, so why aren’t yields jumping up to high levels ?

Doc Merlin May 8, 2012 at 9:28 pm

“Fed WAS buying the newly issued debt, mostly longer term debt. Most of the outstanding stock of 10yr treasuries is in private hands.”

Arbitrage means this doesn’t matter.

“Furthermore, Fed’s operation twist is over, so why aren’t yields jumping up to high levels”

Because the fed is still buying the debt. This is what fixing intrest rates at a low level means.

Boonton May 8, 2012 at 10:44 pm

TallDave

“The bond markets do not care what your population is.”

Really? A country with a 100 million people with a debt of $1B ($10 per person) is no different than 1000 people ($1M per person)? If bonds are paid off with taxpayers then all things being equal it’s easier to have more taxpayers than fewer.

Oh Oh Oh May 8, 2012 at 9:41 pm

Doc: Fed is no longer engaging in operation twist. It is no longer buying the debt. So by your logic, why don’t yields skyrocket:

secondly: Fed buys the debt by actually printing money to do so ( treasury prints the money and gives it to the fed ). So no matter how you slice it or dice it, you should expect, by conventional analysis, a jump in yields. Which is what was predicted by Austerians/Austrians/Republicans/Wall Street Journal, you name it. Yet it has not happened. Back to my original point: nobody knows what the bond market is thinking. Keynesians will point to zero bound, but yields were also low in Greece before they became high.

Doc Merlin May 9, 2012 at 4:48 pm

“Doc: Fed is no longer engaging in operation twist. It is no longer buying the debt. So by your logic, why don’t yields skyrocket:”

It is /still/ buying new debt.

Jean May 8, 2012 at 7:29 pm

Okay, reading the comments and massive frustration is setting in. You are all missing the point – the monetary base is too small, has been since the beginning of the euro. The monetary base exists in a ratio with GDP – when the economy grows the central bank must ensure the monetary base increases by a like amount. Normally, the central bank can do this with the interest rate, sometimes the central bank has to print. When the central bank does not manage the monetary base correctly, banks respond by substituting credit for base money.
The entire periphery of the euro has collapsed (much of the periphery is pegged to the euro) as the too small monetary base flees to the core. This has nothing to do with corruption, tax evasion, or governmental policy. There is no money (M0) or too little in the periphery countries.
Basically, the Germans are repeating the Great Depression without the excuse of the gold standard.

Donald Pretari May 8, 2012 at 7:41 pm

I’m confused by this discussion. Do those numbers include Servicing Debt & Bailouts to Banks? Presumably, the Cuts are in Certain Programs, & those Cuts will be used to Pay Off Debt, etc. Maybe I’m missing something. Anyway, if the cuts are deleterious to some people’s lives, & Govt Funds are flowing out to Creditors, some people might not like that choice, &, if they vote, they might try and do something about it.

Also, I’m puzzled why I’m not reading more about the Deflationary Vice put on Germany and Hitler’s Rise to Power. I thought there was a connection. In Foreign Policy Discussions, Hitler gets mentioned quickly and repeatedly. Why isn’t a major cause of his coming to power worth studying, especially since it involves the case of a country mired in a Debt-Deflationary Vice because of terms pushed by the Countries which owned that debt? I had thought such a plan was understood to have been Self-Defeating.

ThomasH May 8, 2012 at 7:56 pm

Who said “austerity” does not incude tax increases?

The issue is the experinece of countries which have had expnsionary fiscal policies vs those that have not.

Doc Merlin May 8, 2012 at 8:05 pm

‘Who said “austerity” does not incude tax increases?’

Austerity may include tax increases, but it necessarily must include spending cuts.

GiT May 9, 2012 at 12:27 am

Why necessarily? Keep government spending on the steady, and hike taxes to the laffer curve limit. Use the surplus revenue to pay down the debt.

Voila, austerity.

Hilary Barnes May 9, 2012 at 7:00 am

Veronique’s figures are in dollars. Wouldn’t the climb be steeper if in euros?

ConnGator May 9, 2012 at 7:42 am

There is mention about not controlling for population growth, but hasn’t Greece experienced a substantial population decrease (via emigration) in the last few years? I keep reading about people leaving to find jobs in northern Europe.

J Rivers May 9, 2012 at 9:57 am

Even the *shrill* Ecnomists debunks your esteemed De Rugy’s misleading claptrap: http://www.economist.com/blogs/freeexchange/2012/05/euro-crisis-0

crystal dawn May 11, 2012 at 11:46 am

*thumbs up*

Prong 1: Demand austerity
Prong 2: Get austerity
Prong 3: Austerity fails
Prong 4: Deny austerity ever existed

johnw May 9, 2012 at 3:25 pm

Looking at the numbers for the German budget, I notice that it takes a sharp upturn in 2009, just when the Spanish and Greek budgets take a downturn. No doubt this is because in a recession, social insurance kicks in and costs go up because of this. And Germany, of course, has a much lower unemployment rate than Spain. If we assume Germany is not being reckless in its fiscal policies, it appears that the Spanish are cutting their budget at a time when it could be expected to rise rather dramatically because of automatic stabilizers. This is austere compared to “normal” budgeting, as seen in Germany. Perhaps this is the source of confusion about whether austerity is actually taking place.

PLS May 9, 2012 at 5:23 pm

Do the graphs account for increased debt service? If Greece’s borrowing costs just went through the roof, they could shift to a primary surplus and still show a large — or increasing — deficit.

muirgeo May 10, 2012 at 8:41 am

The bottom line on austerity is that it is NOT Keynsenism and it is far closer to what the market fundamentalist would prescribe…. and it is failing miserably in proportion to the degree it is implemented in any given country. It’s the same experience the World Bank has proven over and over with debt restructuring for decades in the third world. In fact the debt these countries are trying to pay off is not the result of overspending it is the result free market created unregulated financial derivatives blowing up the global economy in the first place and dropping out receipts. Now the Hooverites are back telling us to double down on spending cuts so they can tell us once again that prosperity is just around the corner.

Jamie M May 14, 2012 at 6:38 pm

muirgeo Hoover was not a fiscal conservative. The Hoover budgets increased government spending every year except for a small decrease in the 1933 budget.

Government Deficits
outlays
1929 ……………………………………………………………………. 3,127 734 ……………… ……………… ………………
1930 ……………………………………………………………………. 3,320 738 ……………… ……………… ………………
1931 ……………………………………………………………………. 3,577 –462 ……………… ……………… ………………
1932 ……………………………………………………………………. 4,659 –2,735 ……………… ……………… ………………
1933 ……………………………………………………………………. 4,598 –2,602 ……………… ……………… ………………

Source: White House historical data: http://www.whitehouse.gov/sites/default/files/omb/budget/fy2009/pdf/hist.pdf (table 1.1).

Note that the increase of Hoover’s government spending represented a 47% increase over the 1929 budget. So, where were the cuts? Where was the “austerity”?

The myth that Hoover was a laissez-faire advocate is simply disproved.

“Hoover’s role as founder of a revolutionary program of government planning to combat depression has been unjustly neglected by historians. Franklin D. Roosevelt, in large part, merely elaborated the policies laid down by his predecessor. To scoff at Hoover’s tragic failure to cure the depression as a typical example of laissez-faire is drastically to misread the historical record. The Hoover rout must be set down as a failure of government planning and not of the free market. To portray the interventionist efforts of the Hoover administration to cure the depression, we may quote Hoover’s own summary of his program, during his presidential campaign in the fall of 1932:

“We might have done nothing. That would have been utter ruin. Instead we met the situation with proposals to private business and to Congress of the most gigantic program of economic defense and counterattack ever evolved in the history of the Republic. We put it into action…. No government in Washington has hitherto considered that it held so broad a responsibility for leadership in such times…. For the first time in the history of depression, dividends, profits, and the cost of living, have been reduced before wages have suffered…. They were maintained until the cost of living had decreased and the profits had practically vanished. They are now the highest real wages in the world.

Creating new jobs and giving to the whole system a new breath of life; nothing has ever been devised in our history which has done more for … “the common run of men and women.” Some of the reactionary economists urged that we should allow the liquidation to take its course until we had found bottom…. We determined that we would not follow the advice of the bitter-end liquidationists and see the whole body of debtors of the United States brought to bankruptcy and the savings of our people brought to destruction.[2]”

Hoover’s role as founder of a revolutionary program of government planning to combat depression has been unjustly neglected by historians. Franklin D. Roosevelt, in large part, merely elaborated the policies laid down by his predecessor. To scoff at Hoover’s tragic failure to cure the depression as a typical example of laissez-faire is drastically to misread the historical record. The Hoover rout must be set down as a failure of government planning and not of the free market. To portray the interventionist efforts of the Hoover administration to cure the depression, we may quote Hoover’s own summary of his program, during his presidential campaign in the fall of 1932″

[2] From his acceptance speech on August 11, and his campaign speech at Des Moines on October 4. For a full account of the Hoover speeches and antidepression program, see William Starr Myers and Walter H. Newton, The Hoover Administration (New York: Scholarly Press, 1936), part 1; William Starr Myers, ed., The State Papers of Herbert Hoover, (New York. 1934), vols. 1 and 2. Also see Herbert Hoover, Memoirs of Herbert Hoover (New York: Macmillan, 1937), vol. 3.Above is excerpted from chapter 7 of America’s Great Depression ”

Read the above speech carefully. Hoover was a interventionist. He was praised by Keynes for his government

Other notes: You do know that deregulation was done under the Clinton Administration right? Including the repeal of Glass-Steagall? And that financial derivatives were prevented from being transparently traded because of the same Clinton Administration? Not that the Republicans are any better.

Jamie M May 14, 2012 at 6:44 pm

Note that Greece had a increase in government spending of about 55% after “austerity” was imposed. Adjusted for inflation, this represents a increase of over 35% from what that government was spending in 2002. I did not adjust for population growth because the population in Greece dropped over that period.

Other countries in Europe were even worse, but the profligate spending was partially offset by some economic growth.

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