Mark Gongloff, a writer for the Huffington Post, claims to show “The Complete Failure of Austerity, In 1 Chart.” Wow! Either he has found the magic set of data points that every economist has spent years looking for or he has terribly oversimplified the data we’ve all seen before into a contrived series that supports his narrative.
I’m always wary of research claiming to have found the economic unicorn, so I have serious doubts about the former. There are two fundamental problems with Gongloff’s analysis.
First, his main example of austerity’s supposed failure is the economic stagnation of the United Kingdom since Chancellor of the Exchequer George Osborne announced fiscal consolidation in 2010. But Gongloff focuses on what Osborne said and not what he actually did. If Gongloff, along with his journalist colleagues who make the same mistake almost every time they utter the word “austerity,” had taken the time to glance at the U.K.’s budget data, he would have found that our Atlantic neighbors have actually increased spending and taxes since “austerity” began. As I point out in my country-by-country report on austerity, The True Story of European Austerity: Cutting Taxes and Spending Leads to Renewed Growth, this is not unique to the U.K. The economic woes of Britain and Western Europe stem from a lack of austerity, not a dearth.
Second, Gongloff picks out a few select European countries to showcase austerity’s ineffectiveness at reducing government debt burden. His failure to take into account all European countries aside, he uses a meaningless (and unfortunately overused) statistic to measure each country’s debt burden: total government debt/GDP. That is, sovereign principal debt as a proportion of the whole economy’s assets. Unless he wants to posit as useful assumptions in analyzing debt sustainability: 1) 100 percent expropriation of everyone’s assets, and 2) the non-existence of debt financing, he should instead compare government’s required payments against its means of payment: interest payments vs. revenues. Using Eurostat data, I’ve crunched the numbers below.
In countries that actually cut spending and taxes, quarterly government interest payments as a proportion of revenues—measured with a median value in order to parse out temporary volatility— increased on average by 2.6 percent during each quarter since austerity’s implementation. In countries that carried out what Gongloff implicitly advocates: increasing spending and taxes, this figure was 4.7 percent. Cutting the size of government, it turns out, actually slows the increase in public debt burden on government finances.
Does this post close the book on the austerity debate? Of course not. But it sheds light on the absurdity of arguments claiming to have proved or disproved austerity’s effectiveness in a few paragraphs and one chart.