Or should that read what is “austerity”?
The May 11 IHT has a headline “German line on austerity appears to soften,” and the article is about monetary policy and inflation targeting (I don’t see it on line). While monetary policy has ramifications for fiscal policy and output, I would not refer to tight money as “austerity,” in spite of the mood affiliation.
Notice that is mostly about spending, and notice the word “and.” I find this definition confusing, especially if one interprets the “and” strictly. Tax hikes are then mentioned:
That seems to make the “tax hikes” something other than “austerity policies.” The Macmillan on-line dictionary makes it all about spending and not about taxes at all.
A financial source in the top ten, Investopedia, reports this:
A state of reduced spending and increased frugality in the financial sector. Austerity measures generally refer to the measures taken by governments to reduce expenditures in an attempt to shrink their growing budget deficits.
That starts with spending, then shifts to the financial sector (?), and the second sentence shifts back to spending. That’s confusing too. How do higher taxes fit in? What are the baselines?
Krugman I do not think has offered a definition or measure of austerity (he spends more time doing a link-less attacking of others, including possibly myself, for claims about austerity which he does not document anyone making or they simply did not make), but he seems to think that automatic stabilizer-driven spending increases do not count as spending increases for the purpose of defining austerity. Neither does spending on bank bailouts count for him.
I could imagine a definition something like this: “the net effect of all government fiscal policies on ngdp, relative to the baseline of a stabilized path for expected ngdp growth.” Or should it read: “…relative to what will happen to ngdp growth in the absence of budgetary changes”? I wonder if some Keynesians have in mind the baseline of “the expansionary policies which I think would be appropriate,” in which case doing less than the Keynesian optimum is always a form of austerity. Angus notes correctly that clear definitions of austerity are hard to come by.
In Bucharest I cannot alas consult my library for further definitions.
In any case, austerity is a misleading and often misunderstood word. It is better if we describe policies more concretely, and in fact that is not hard to do. Furthermore, insisting on a clearer accounting should not be equated with “austerity denial.”