Two Cheers For Austerity!


Writing in The New York Times, Reason columnist and Mercatus Center economist Veronique de Rugy gives two reasons to cheer the wave of austerity measures sweeping various broke-down-and-busted countries (though not alas our own sweet land of liberty).

First, writes de Rugy, austerity measures signal to foreign investors that the country they're putting their money in is serious about, well, continuing to be a country. Second, and arguably more interesting, austerity measures are stimulative in a way that stimulus spending doesn't seem to be:

Austerity measures are beneficial beyond the signal to investors. Based on a sample of 44 large fiscal adjustments since 1975, the Goldman Sachs economists Ben Broadbent and Kevin Daly have shown that cutting annual spending by 1 percent triggers a net 0.6 percent in economic growth. Lower spending reduces the fear of higher taxes, which in turn, leads to an increase in consumer and business demand and economic growth.

Whole thing, including pieces by other analysts, here.

Hey, was we stimulated anyway?