Wednesday, October 24, 2012

Austerity - How continental Europeans understand it!

So, everybody knows that I am not a big fan of Krugman, especially since his reporting has become worse since he left his academic post. But this here from his latest rant on failed austerity in the UK is just hitting the top:

Gee, remember the enthusiasm with which the Cameron/Osborne turn to austerity was greeted by VSPs on both sides of the pond, with David Broder urging Obama to “do a Cameron”?

He not only did not cite a definitive proof on austerity and its measures in UK, but he also only showed that the UK stagnates. He is optimistic about the US, but I am not, because the US is much worse than he himself projected it to be.

Now, it might be that in the anglo-saxon world here and beyond the big pond, we have different definitions for "austerity". However, continental Europeans define austerity as policy that reduces spending in a way that leads to a balanced budget or even a surplus budget. No European country has followed that way.

There are also some grey-area uses of austerity with different degrees of spending reductions, but they are used by people like Krugman, who support deficit spending.

However, austerity in the continental sense is NOT raising taxes to reduce budget deficit. It seems that, however, this is the case with the UK and with Krugman. He misuses (like the word liberal) or wrongly characterizes the word austerity. As a US example, austerity would mean spending levels of 2001 today. It would mean a balanced budget in the crime-riddled wasteland of 2001 US!

But what abou the UK? It turns out that it is neither reducing spending, nor is on the way to a balanced budget. Even through the crisis, spending grew, debt grew and of course, that means no way the crisis would go away quickly. Yes, the growth of the debt slowed a bit, but that is like fiddling on the fringes: no big changes, no big effects. And so, we are neither suprised, nor disheartened that the none-austerity didn't get us out of the depression.

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