Austerity works (if it's really implemented)
Europe's struggles prove that “austerity” fails. So say the Big Spenders. With a condescending sigh, they explain that Europe made deep cuts in government spending and the result is today's high unemployment.
“With erstwhile middle-class workers reduced to picking through garbage in search of food, austerity has already gone too far,” writes Paul Krugman in The New York Times.
One problem with this conclusion: European governments didn't cut! That doesn't stop leftists from complaining about cuts or stop Europeans from protesting announced austerity plans. But if austerity means spending less, that hasn't happened.
Some European countries tried to reduce deficits by raising taxes. England slapped a 25 percent tax increase on the wealthy but it didn't bring in the revenues hoped for. Rich people move their assets elsewhere or just stop working as much.
If politicians honestly want to boost their nation's economies, they should look to what happened in countries that bounced back from economic slumps.
Iceland was hit by bank collapses — but government ignored street protests and cut real spending. Iceland's budget deficit fell from 13 percent of gross domestic product to 3. Iceland's economy now is growing. Canada slashed spending 20 years ago and now outranks the U.S. on many economic indicators.
Around the same time, Japan went the other way, investing heavily in the public sector in an attempt to jump-start its economy, much as the U.S. did with “stimulus” under President Obama. Japan's economy stagnated. The left now claims Japan didn't stimulate “enough.”
In the U.S., politicians imply spending limits would be “cruel” because vital programs are “cut to the bone.” But we are nowhere near bone.
Consider this family budget:
Annual Income — $24,500
Annual Spending — $35,370
New Credit Card Debt — $10,870
Existing Debt — $167,600
When I show that to people, they laugh and say the family is “irresponsible.” They are dismayed when I point out that those are really America's budget numbers, with eight zeros removed:
Revenue — $2,450,000,000,000
Spending — $3,537,000,000,000
Deficit — $1,087,000,000,000
Debt — $16,760,000,000,000
Then people say: “That's terrible! We have to balance the budget.”
Actually, we don't need to “balance” it. We just need to slow spending growth to about 2 percent a year, so the economy can gain on our debt. But politicians won't do even that.
The first step toward a solution is just being honest about the deep hole we're in — giving up on the lie that governments elsewhere failed with “austere” budgets. They haven't.
John Stossel is host of “Stossel” on the Fox Business Network. He's the author of “No They Can't: Why Government Fails, but Individuals Succeed.”