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Saturday, March 10, 2012

"Austerity" Surrounds But None to be Found....


We are endlessly berated over the failure of austerity in America when no austerity has been undertaken. The failure has been in what has been undertaken Keynesian economics.

Douglas Holtz-Eakin:

Where is this austerity? It is certainly not anywhere to be found in the federal budget. Total spending in 2011 was $3.598 billion in 2011, higher than the stimulus-bloated total in 2009, and 21 percent higher than the year of the Bush administration. Austerity?

Maybe the austerity is found in discretionary spending — the annual decisions of Congress. Mandatory spending — entitlements — continues its relentless march to the (red) sea, up to $2.215 billion in 2011 or 24 percent above 2008 levels. But discretionary spending in 2011 was $1.346 billion, an entire $1 billion lower than in 2010. One billion dollars. To be sure, the new Congress put the brakes on the discretionary-spending binge, but austerity it is not.

Or, perhaps the austerity stems from the draconian Budget Control Act of 2011 — the so-called debt limit deal. The BCA “cut” $917 billion from discretionary spending over the next 10 years. Sort of. Actually those “cuts” are promises that a future administration and Congress in, say, 2018 will spend less that it would otherwise (honest, really and truly, cross our hearts). Hopeful thinking, yes. But austerity?

Maybe the austerity is sneaking in at the sub-federal level. Mr. Krugman is fond of making this claim. But the data don’t really bear that out. In the National Income and Product Accounts state and local spending has risen the last three straight years and is back to 2008 levels. And recall that 2008 spending was bloated by bubble-driven revenues, to the point that it was over 50 percent above 2000 levels. Austerity?

The only austerity that has been implemented whole heatedly can be found in the only European nation to receive debt rating upgrades, Estonia:

Skype And Sensibility

Estonia finally joined the euro zone this January. The euro had always been the country's declared goal. In the last few years, starting in 2008, the Estonians had fought their way through the worst economic crisis they had ever seen, triggered by the global financial crisis and the bursting of the local real estate bubble. The economy shrank by 14 percent in 2009.

Then three things happened. First, the government announced a harsh austerity program. The government bureaucracy was thinned out, healthcare and social services were cut back, and even the streetlights in Tallinn were switched off at 3:30 in the morning. Businesses reduced wages by up to 40 percent, with the promise they would be increased as soon as the economy improved. The government did not pump borrowed funds into the economic cycle. Instead, it did what economists call internal devaluation.


In the middle of this year, two rating agencies, Standard & Poor's and Fitch, upgraded Estonia's credit rating. The country had a budget surplus of €115 million in the first two quarters, and it is expected to virtually balance its budget for the entire year. Government debt is about 6.6 percent of the gross domestic product, as compared with 120 percent in Italy, 160 percent in Greece and 80 percent in Germany. In the first two quarters of 2011, the Estonian economy grew at an annualized rate of 8 percent.


1 comment:

  1. Regulations are strangling recovery in the USA. Read this and the comment following it.