The Fraud Of Austerity

I’ve said the same thing, but here it is in different words (probably better words, but I’m not going there).

Many on the left, including European socialists in tandem with the New York Times and its economist Paul Krugman, are falsely claiming that Europe and even the United States are being saddled with “austerity.” Their claim is that governments are not spending enough to reduce unemployment. They want higher taxes on the most productive plus bigger government.

They all suffer from a collective memory loss. Don’t they remember that socialism did not work? Every time the big-government “solution” has been tried for the past two centuries, it has failed, but those on the left seem to be incapable of learning.

When the current economic crisis began — largely caused by a government-created housing bubble — we were told that if the government spent an extra trillion dollars or so and ran up the deficit, all would be well. Did it work as advertised in the United States? No. In the United Kingdom? No. In France? No. In Italy? No. In Spain? No. And not even the left wants to talk about Greece.

The chart below shows that rather than the austerity the left is whining about, government spending has risen as a share of gross domestic product (GDP) in all of the major economies. Again, the left said unemployment rates should have come down by now, but the opposite is happening.

Charles Hugh Smith, in an essay on Peak Government, explains the real mechanism at work, albeit a little polemically:

The Death Spiral of an Expansive State

We can now see that the Central State faces an impossible contradiction: to pursue its primary purpose of protecting the citizenry from predation, it is granted powers that enable it to evade its own self-limiting mechanisms. Private concentrations of wealth gain control over the State’s machinery of governance, and the resulting partnership of private and State elites suppress the mechanisms that were intended to limit private influence over State power.

To enhance their own power, these elites increase the State’s reach until it dominates the entire political, social, and economic system. This sets up an inherently self-destructive feedback loop in which the State’s actions to protect its self-serving elites weaken both the State and the nation. The State’s inefficiencies pressure the nation’s output, even as the State increases its share of the national income to maintain its self-serving elites and quiet its potentially restive dependents. The more the State expropriates, the less surplus is left for productive investment, and so the nation’s output continues to decline.

This dynamic creates a positive feedback loop (i.e., a death spiral) of higher taxes and lower investment in productive assets.

Hotel California.

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Comments

  • Alex  On May 16, 2012 at 8:27 am

    I dislike how people play the extremes. Yes, there’s massive broken window fallacy thinking going on by some on the left, but to say that socialism didn’t work or that government has never helped is every bit as plainly stupid. One only needs to look at economic history 1850-present to know that government intervention and socialism of the right kind is absolutely imperative.

    Let’s not mix the incorrect macro argument that taxation automatically destroys wealth with the correct micro argument that the US and European public service and governments are poorly run and overpaid.

  • reality  On May 16, 2012 at 9:44 am

    The reply got kinda long so I made it a post.

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