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Myth-Making By the Left on Europe Continues

May 2, 2012, 10:16 am

The Left continues to push the myth that government "austerity"  (defined as still running a massive deficit but running a slightly smaller massive deficit) is somehow pushing Europe into a depression.  Well, this myth-making worked with Hoover, who is generally thought to have worsened the Depression through austerity despite the reality that he substantially increased government spending.

It is almost impossible to spot this mythical austerity beast in action in these European countries.  Sure, they talk about austerity, and deficit reduction, and spending increases, but if such talk were reality we would have a balanced budget in this country.  If one looks at actual government spending in European nations, its impossible to find a substantial decline.  Perhaps they are talking about tax increases, which I would oppose and have been occurring, but I doubt the Left is complaining about tax increases.

Seriously, I would post the chart showing the spending declines but I can't because I keep following links and have yet to find one.  I keep seeing quotes about "commitment" to austerity, but no actual evidence of such.

Let's take Britain.  Paul Krugman specifically lashed out at "austerity" programs there are undermining the British and European economy.  So, from this source, here is actual and budgeted British government spending by year, in billions of pounds:

2007: 544.0

2008: 575.7

2009: 621.5

2010:  660.6

2011:  683.4

2012:  703.4

2013: 722.2

Seriously, I will believe the so-called austerity when someone shows it to me.  And this is not even to mention the irresponsibility of demanding more deficit spending without even acknowledging the fact that whole countries already have so much debt they are teetering on the edge of bankruptcy.

Here is the European problem -- they are pouring hundreds of billions of Euro into bailing out failed banks and governments.  They are effectively taking massive amounts of available resources out of productive hands and pouring it into failed institutions.   Had they (or we) let these institutions crash four years ago, Europe would be seeing a recovery today.  The hundreds of billions of Euros used to keep banks on life support could have instead been used to mitigate the short term effects of bigger financial crash.

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Category: Economics, International Affairs
  • me

    Grrr. Since when is Drum "the left"?!

    As probably the most left-leaning commenter on this blog (then again, being a libertarian puts you to the far left of any of the mainstream American political parties), I agree with most of what you say...

    That said, it should be realized that when folks in Europe talk about austerity, what they mean is that they expect less money from Germany in the future and are severely curtailing social programs that hit the bottom line for lots of poor people while maintaining and increasing spending on their power base in the administrations. It's exactly the same phenomenon you have here, where cuts surprisingly seem to hit libraries and parks first.

  • NormD

    Everything I have heard says that European "austerity" mostly consists of raising taxes.

    This seems counter-intuitive, but it is what it is.

    Being "against austerity" means wanting the government to spend more. Hire more bureaucrats, buy more stuff, pay more welfare. Kinda like Krugman.

    I don't think that Leftists get much past this. As to where the money is to come from, my guess is most of the people on the street have only the vaguest idea and don't really care.

    In so many ways, today's political debates are highly reminiscent of the 1930s. Most young people have no experience of inflation and no idea of why central planning doesn't work. My guess is that if you described a country with North Korea's political system but not named North Korea, many Leftists would want to live there.

  • Sean

    Iceland is a good counter example. They essentially led the global recession and declared bankrupcy leading to a sharp decline in their economy but they seem to be recovering quite nicely now. The people there decided to priortize their own national interests over that of banks and foreign governments who had loaned them money. They also had to good sense to stay out of the Euro.

  • me

    Pretty much the only country that handled things right. Reminds me a fine post I ran across today:

    I've never seen an open market in the wild, much less it "always winning”.
    You mean an open market like the "$1 trillion bailout not to collapse the whole economy" open market?

    (http://raganwald.posterous.com/ive-never-seen-an-open-market-in-the-wild)

  • TDK

    What's actually happening in the UK is that whilst government spending is increasing (as you show) the proportion devoted to interest payments is growing, which leaves less for public services. That's the cause of all the media claims of cuts.

    You should also take note of the way the "cuts" are being enacted. We are talking of budgets being returned to 2004 levels. At that time we had public libraries financed by the state. One would have hoped that the cuts would first hit the equality officers, compliance managers, H&S, management rather than say doctors, nurses, teachers, fireman, let alone the libraries which have been around for decades. However the budgets are mandated by the government but cuts are selected by local government. In true bureaucrat style they apparently can't spare any of the equality officers but the libraries which are reasonably popular are first for the chop.

  • Doug

    @me: "...Last, but not least, an open market where a country with a military advantage has several army units deployed and several wars to secure resources and keep their prices down?" I'm no fan of the two "wars" going on in Iraq and Afghanistan, but maybe you could tell me what "resources" we have secured by parking our militaries there? Sand for our concrete industries?

    "It’s exactly the same phenomenon you have here, where cuts surprisingly seem to hit libraries and parks first." Can you name one? In this day and age of the internet, libraries are the buggy whip industry of the 21st century. They SHOULD see cuts, but they don't. Parks? Government continues to buy or steal lands that it can't support to begin with. Government SHOULD be selling off park lands, but they don't. Unsustainable government employee benefits are the root cause of today's "fiscal crises" throughout the land, as Wisconsin has demonstrated.

    As Coyote points out, "cuts" aren't cuts. My state, California, is bankrupt by any definition of the term, but it hasn't stopped the state from continued spending increases. It's only a matter of time before this house of cards collapses, after which we may finally see some REAL cuts, not the type of make-believe cuts that you allude to.

  • me

    @Doug:

    Not debating you no the great beneficial impact of the wardventures. I don't see any.

    What I found notable is the authors assertion that free markets might work extremely well if anyone ever let one happen, but that all participants appear to be hellbent on ensuring that never happens. You should see the forms about hazardous chemicals you have to fill out if you dare to write iPhone Apps in your own home.

    My experience has been that whenever the city I live in was in a tough spot with respect to the budget, libraries and parks suddenly were closed multiple days of the week and anything open to the public had reduced times. Just so that there was no danger of anyone in the city losing their jobs or taking a salary cut. Remarkable, really, that the publicly visible services would be cut first and cut hard...

  • MJ

    @me There's a name for that. The Washington Monument Syndrome.

  • me

    Oh, that's brilliant - thank you for sharing, MJ!!

  • Smock Puppet, 10th Dan Snark Master

    Clearly you are wrong.

    *Racist*.

    :^9

  • IGotBupkis, Legally Defined Cyberbully in All 57 States

    >>> Remarkable, really, that the publicly visible services would be cut first and cut hard…

    Ah, well, this works in several ways.

    a) Police, Fire, and Emergency services are always the ones cut first, around here. Not randomly unneeded functions like the budget for operating a skating rink downtown in the winter. THIS IS IN FLORIDA, mind you. This kind of "budget cutting" is insanity, of course. I've always thought "come the revolution" --

    i) GAAP. All around. Half the crap that's going TU across the country can be directly attributed to government games with lame accounting tricks.

    ii) Require that ALL items be budgeted with a "priority rating" from one to five, and make those priority ratings be challengeable in court. One is highest priority, five is lowest priority. Hence, Police, Fire, and Emergency all are class 1. Ice skating rinks are class 5. When it comes time to cut budgets, the first 25% cuts all occur from class 5. The second 25% are split between classes 4 & 5 (ergo, 12.5% c4 and 37.5% c5, cumulative). The third 25% is split between c3,4,5: 8.3% c3, 20.8% c4, and 45.8% c5. In application, suppose $250,000 is to be cut. The total budget for c3,4,5 are 500k each (for simplicity of demonstration). So c5 immediately gets a 25% cut, to pull out 125k. Now 12.5% of c4 is cut (62.5k) and 12.5% of c5 (62.5k) -- that's 250k, so cuts are finished. If another 50k needed to be cut, that would come from up to 8.3% of c3,4,5

    b) The local university is getting hit with budget cuts. Do they cut expenditures, purchases, various equipment? NAWWW. They're cutting positions, not FACULTY mind you, but staff and grad assistants. Because they're a bloc that votes and whines to the politicians when they lose a job.

  • IGotBupkis, Legally Defined Cyberbully in All 57 States

    The local university is a state university, mind you, in case that wasn't clear.

  • Ted Rado

    Whether you are conservative, liberal, rich, poor, or whatever, the bottom line is that over time, we cannot spend more than we take in. There are endless things that it would be "nice" to do, but there is not enough money to do them all. Efforts to try to do them all is what caused the problem in the first place.

    Now that we let all the toothpaste out of the tube, getting it back in seems impossible. The sick, the poor, the elderly, etc scream if reductions in their benefits are suggested. It will take great leadership and gutsy politicians to convince everyone that the gravy train has to stop.

    I am a retiree and would be quite willing to reduce my SS payments and medicare benefits, provided everyone else was willing to make sacrifices also. I would bet that lots of people feel the same way. That should make the necessary cutbacks politically possible. There will always be the "I want mine and screw you" types, but the pols need to face up to them.

  • marco73

    Just look up the hijinks in Tampa with the USF budget being held hostage in the Florida Senate so that a 12th State university would be approved.

    In the past couple decades, there has been an explosion of universities in the state university system. These are all brick and mortar facilities, with plenty of buildings for legislators to put their names on (and their parent's names - see Johnny Byrd.)

    Wait, the university business model is changing, with plenty of on-line offerings replacing traditional classroom lectures. Shouldn't we strengthen the existing university system to ensure the long term viability of what we have in place now?

    Hell no! A state senator listened to his constituents, meaning various deep pocket contributors, and demanded a 12th state university, conveniently located 30 minutes from the 8th largest university in the US. Yeah, don't want students to have to travel 30 minutes to school, we need to spend millions to build another university in their back yard.

  • Hasdrubal

    You could make a consumption smoothing style argument for austerity having an impact before it takes effect: People and firms expect less government largess in the future so they cut back now in order to prepare for it. I think a few people used this kind of thinking to predict improved economic performance as a result of the stimulus before the spending even started.

    Of course, you run into two problems with this line of thinking:

    1.) The government has to credibly commit to austerity, people have to actually believe it's coming, they can't think it's just another empty campaign promise. Of course, if you can point to closed libraries and parks, you might be able to convince people.

    2.) You also have to acknowledge that if people and firms are forward thinking about this, they'll also be forward thinking about repaying government debt, so higher debt now will result in lower economic activity now in preparation for higher taxes to repay the debt in the future. Of course, this is kind of tough for the anti-austerity types to push forward, especially since at least Krugman, I think, explicitly argues against the debt/future cost connection.

    And how does raising taxes equate to austerity? It increases government's impact on the economy, not reduces it. That seems like a case of not seeing the forest for the trees.

  • Mark2

    @IgotBubkis, the university not cutting faculty and cutting staff instead, at U of F is inspiring. They are demanding that Profs step back from their "research" and actually do a bit of teaching again. The assistants are mostly the ones used by the Faculty to grade papers for them, or teach classes the profs would prefer not to attend. It is time that the profs started doing their fair share again.

  • Mark2

    @Ted you can actually spend more than you take in for an infinite amount of time as long as the economy is growing faster than the excess you spend.

    Say you spend 3% too much each year but your revenue is going up 4% a year, you are doing dandy. It is theoretical though. No-one can really maintain this, even in the corporate world. People get greedy, think they can borrow more one year, and pay it back with savings from the next, etc.

    But it is theoretically possible.

  • Ted Rado

    Mark2:

    I am well aware of that argument. As long as the debt grows at slower rate than the GNP, we are OK. In the meantime, the interest on the debt is growing also. If we were on a cash basis, the money not being pissed away on interest could be put to good use. It amounts to hundreds of billions per year.

    On a personal note, onr is much better off to get ahead of the game and pay cash for purchases. The idiots that owe thousands on their credit carda are paying hunreds of dollars per year interest. That money could be used for worthwhile purposes.

    I pay cash for wverything, and thus have a bunch of extra money to spend. If I have enough sense to do this, why not the pols in Washington? First of all, though, you have to get ahead of the game and have some savings in the bank. This seems to be difficult for many.

  • marco73

    @Mark2 - since you brought up UF.

    Most of the engineering department still resides in Weil Hall.
    It was a pit when I was there 30 years ago, and last time I visited it sure looked like it could use a coat of paint, or a bulldozer, depending on the budget.

    Right across the street from Weil Hall, the football team has seen its budget grow in leaps and bounds, with The Swamp rivaling most NFL stadiums. Obviously the administration has it's priorities in order.

  • MarbellaBoy

    I tell ya, being a fiscal conservative in the US may be difficult, but try being one in Europe! However, despite what you may see on the intertubes, I am finding that I am pushing more and more against an opening door here in Spain when I discuss this with people locally. The recent union marches against (so called) austerity here were a damp squip and the basic pragmatism (and small c conservatism)of the Spanish people is starting to show through. The good times only really began to roll here in 2000 after 60 years of REAL austerity, so it is not too difficult for people here to revert to the way things were a decade ago. Spain may be the flavour of the month right now, but the situation here is, on paper, better than for the US, we only have 80% debt against your 100% and every adult here has life experience of far more difficult times. They survived that and they will survive this. I am only a transplant here in Spain, but I feel mare and more Spanish the longer I live here. Don't write us off yet.

  • Sam L.

    Drum has always struck me as left.

    And I KNOW the left complains about tax increases--because they are too few and too small.

  • Mark2

    @marco73. The sports department - despite being self funding, was only given a 2.2% budget increase this year.

    Maybe if the CS department wants swanky facilities they should become self funding too. @USC, a private school I admit, the engineering department was really nice, but then the department was able to bring lots of revenue to the school.

    Could UofF make it a requirement that all the students write apps?

  • Mark2

    Does anyone know where I can get info like Warren posted on England for other European countries, particularly France. I have been looking but most of the pages which might contain the info are in French, which makes the pages impossible to navigate for me.

    Someone must be compiling and posting this information.

  • Mark2

    I found this
    http://www.finances.gouv.fr/pole_ecofin/finances_Etat/

    Sad thing is even I can tell this is a bad link page
    http://www.economie.gouv.fr/actus/actus.php

  • me

    *Cough*: Austerity in Europe, as measured by how much government spending has changed. I take this as proof of the Washington Monument Phenomenon at work (given that direct services to citizens *have* in fact been curtailed quite a bit)

    http://marginalrevolution.com/marginalrevolution/2012/05/how-savage-has-european-austerity-been.html/austerity