Monday, June 17, 2013

An Austrian Economist Discusses Austerity?

Dr. Richard Ebeling discusses "austerity," during an interview with The Daily Bell:
What is "austerity"? I think most ordinary people, when they hear the word, think that it means that someone has been spending too much, has gotten themselves into unsustainable debt and now has to significantly get their personal finances in order so as not to "go under" – that is, lose their home, be delinquent on their credit cards and face bankruptcy.

The individual has to "trim" his current spending out of income: find ways to cut corners and reduce buying those things that he decides are of a lower priority and which he can get by without. At the same time, he might see if there are any avenues to try to earn some extra income to help take the pressure off their budgetary problems.

But in the United States and especially in Europe, government "austerity" means merely temporarily reducing the rate of increase in government spending, slowing down the rate at which new debt is accumulating and significantly raising taxes in an attempt to close the deficit gap.

The fundamental problem is that over the decades, the size and scope of governments in the Western world have been growing far more than the rates at which their economies have been expanding, so that the "slice" of the national economic "pie" eaten by government has been growing larger and larger, even when the "pie" in absolute terms is bigger than it was, say, 30 or 40 years ago.

Too many European governments, in general, take the view that "austerity" means squeezing the private sector more through taxes and other revenue sources to avoid any noticeable and significant cuts in what government does and spends. So there is "austerity" for the private sector and a mad rush for financial "safety nets" for the government and those who live off the State.

Now, don't get me wrong, some governments have had to make cuts in social benefits and redistributive programs simply because the money is not there to cover all that has been promised and citizens have been used to receiving. But the attitude of those affected by any such "trimming" is that it should be reversed, preferably immediately, since they can't conceive of life without what the government provides and guarantees; and those in political power clearly view it all as an "emergency" to get over, so that when "normal" times return, the "trend line" of growing government can be restored and continued.

In reality, of course, it is the burdens of government regulation, taxation and impediments to more flexible labor and related markets that have generated the high unemployment rates and the retarded recovery from the recession.

The full interview is here.

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