Austerity Is Mythical, But It Would Have Real Benefits

Left-leaning commentators are wrong to decry “austerity” in Europe, since, as the Richmond Times-Dispatch notes, such “austerity” is largely mythical:

European nations have not slashed spending. To the contrary, only a couple have even so much as nicked it.

According to the European Union, “National budgets are not decreasing their spending, they are increasing it.” In 2011, 23 of the EU’s 27 nations raised spending levels. This year 24 of them will.

In the past decade, aggregate spending by EU governments rose 62 percent, according to Investor’s Business Daily.

On the other hand, during some past periods of economic growth, the U.S. actually did practice austerity, cutting government spending, as a graph at The American illustrates (see this link).

As James Pethokoukis notes there, “From 1944 to 1948, Uncle Sam cut spending by a whopping 75% as World War II came to end. Spending as a share of GDP plunged to 9% in 1948 from 44% in 1944.”  “Despite cuts which dwarfed those” that “Republicans are calling for” today, “the U.S. economy thrived. There was no mass unemployment despite rapid demobilization of the armed forces.” Similarly, the economy grew in the 1990s, when federal spending was much lower than it is today: “After the Cold War ended, overall federal spending fell to 18% of GDP in 2000 from 22% in 1991. But again the economy boomed. Real U.S. GDP grew by 40% with an average annual growth rate of 3.8%.”

Government spending is not a panacea for recessions.  Herbert Hoover increased government spending in the Great Depression, both in real terms and as a percentage of the economy, but the economy failed to revive. As Megan McArdle of The Atlantic notes, government spending more than doubled as a percentage of the economy from 1929 to 1933. Although the economy temporarily revived under Roosevelt, it then went back into a nasty recession in 1937-38, the so-called Roosevelt Recession. A sustained recovery from the Depression finally occurred only after a coalition of conservative Democrats and Republicans effectively took control of Congress in 1938 and blocked (or, in one case, repealed) various anti-business measures that had been stalling a natural recovery by discouraging investment.