From Nobel laureate Paul Krugman to the free-market-friendly Economist to former Treasury Secretary Lawrence Summers, all sorts of experts are charging that financial austerity measures are killing the great economies of Europe. "Austerity Is So Wrong!" reads the headline of a Krugman piece at The Daily Beast that argues against cutting government spending during weak economic times.
But the critics of austerity have got it all wrong, says Mercatus Center economist and Reason columnist Veronique de Rugy. For starters, many European countries haven't cut spending at all and, among the ones that have, most have made relatively minor trims while also hiking taxes. That's known as "the balanced approach," notes de Rugy, and it almost never works to reduce debt-to-GDP ratios or get economies moving again. Yet critics of cutting government spending in a weak economy ignore academic research showing that significant spending cuts, structural reforms to entitlements, and loosening labor regulations are proven ways to reduce debt loads and get countries moving again.
De Rugy talked with Reason's Nick Gillespie about austerity and its discontents—and what the United States could learn from Germany's economic reforms made earlier this century.
About 7 minutes long. Produced by Jim Epstein; camera by Epstein and Meredith Bragg.
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