There’s austerity in Europe, all right — of the taxing sort

The austerity debate is back, with American liberals pointing to shrinking European economies as evidence against the wisdom of cutting government spending here.

Typical is this argument from a column by the New York Times’ Paul Krugman last month: “Europe has had several years of experience with harsh austerity programs, and the results are exactly what students of history told you would happen: such programs push depressed economies even deeper into depression.”

Indeed, nine of the European Union’s 27 member-countries were in technical recession by the end of 2011 or the first quarter of 2012 (not all countries report first-quarter data at the same time).

There’s just one problem: There have been no such austerity programs, at least not of the type Krugman and other liberals warn against.

In five of the nine recessionary countries, governments cut spending in 2011. In four, they didn’t. There were another three European countries in which public spending fell without triggering a recession.

Britain, considered a poster child for the hazards of austerity, hasn’t cut spending at all. It did, however, raise the top marginal tax rate: by 10 percentage points in 2010 and an additional 1 point last year.

In fact, the EU’s recessionary countries were just as likely to have raised taxes in 2011 as to have cut spending.

The hardest-hit countries — Greece, Portugal and Spain — did both. These countries are the only ones in Europe that can truthfully say they’ve embraced austerity. Unless, that is, you count Iceland, which returned to robust growth last year despite cutting spending by more than 5 percent.

Yet, in both Portugal and Spain, the tax hikes were larger, percentage-wise, than the spending cuts. So, who’s to say the changes in spending, rather than taxes, are to blame?

What about Ireland, you may ask. Hasn’t the famed “Celtic Tiger” of the 1990s and early 2000s been declawed during the past few years?

Ireland has dipped into recession, and it did cut spending by a whopping 27 percent last year. Of course, it increased spending by an even more whopping 33 percent in 2010 — leaving public expenditures just slightly below the levels in the previous couple of years.

What has changed significantly in Ireland are tax rates. Spending was 1 percent lower in 2011 than in 2008, but the top marginal tax rate — the rate applied to an earner’s next euro of income — rose 17 percent. Again, why should we accept it’s the spending, not the taxing, that has pushed Ireland’s economy down?

One more thing you won’t hear from the anti-austerity crowd is that the tax hikes have not had their intended effects. Britain, for instance, is lowering its top tax rate again after no more than two-fifths of the projected new revenues materialized. All that the higher rate achieved, treasury chief George Osborne noted, was for high-earning Britons to move their money around and change their behavior to avoid the higher rates.

These distortions — which themselves could explain some of the U.K. economy’s troubles — weren’t worth the new revenues that were realized, Osborne explained.

That’s one more thing for Americans to keep in mind as they hear about the policies we should or shouldn’t import from Europe.

– By Kyle Wingfield

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561 comments Add your comment

Rafe Hollister

May 4th, 2012
6:21 pm

Kyle, great article. I don’t believe you will ever get through to the libs that when you raise taxes, people change their habits. If you want more growth, you do not get it, by taxing it.

You do not mention Germany, but they seem to be doing well, and I believe Merkel was one of the first to tell Oblama that she was not going to try and re-inflate the economy, but was going to cut spending.

Rafe Hollister

May 4th, 2012
6:32 pm

The elite always go apoplectic over simple solutions, but IMO they often miss the solution that appears right before them, if they would just take off their distortion glasses. Anyone who ever thought you could spend your way to prosperity has spent too much time in the hot sun. Any one who thinks the rich are just going to keep on keeping on, when you raise their taxes to the point that it is not worthwhile to continue their endeavors, are under the influence of wealth envy.

MarkV

May 4th, 2012
6:46 pm

Kyle,
I know you have followed Europe’s economy and written about it, and I not being an economist, I won’t go into arguments of percentages. I also know that you feel you know those issues better than not only Krugman, is spite of his Nobel prize, but also better than another Nobel Prize-winning economist Joseph Stiglitz (“Europe is in a “dire” situation as a focus on austerity pushes the continent toward “suicide.” ) But I have enough contacts with people in Europe to know that the austerity that is the subject of their debate is not a figment of imagination of American liberals. With all due respect, I believe them more than an American conservative.

Thomas Heyward Jr.

May 4th, 2012
7:00 pm

Listening to Krugman speak about economics and expecting rationality is as stupid as voting for Mitt Romney and expecting a conservative, smaller , more efficient government.
.
Of course BOTH pander to what America has a surplus of.
.
Progs.

Stephenson Billings

May 4th, 2012
7:35 pm

Instead of following Europe’s lead in cutting gov’t spending, Obama wants to import Europe’s “cradle to grave” nanny-state type programs for “Julia”

http://www.barackobama.com/life-of-julia

md

May 4th, 2012
7:36 pm

Obama has a Nobel prize…..so much for that argument, doesn’t seem to take much these days.

As for austerity…..folks seem to forget why these countries have had to resort to austerity…..and hint, it isn’t because they had good savings plans.

They already spent what they didn’t have and adding to that makes no sense at all…..-10 -10 = -20 no matter what kind of school one went to. There comes a point of no return (Greece) where the money is all gone and austerity is the only option……………

Stephenson Billings

May 4th, 2012
7:36 pm

Which, by the way, is mostly the reason a lot of the European countries are in the predicament they’re in now….

md

May 4th, 2012
7:38 pm

Playing the lottery is not a proven strategy for growth……..

Stephenson Billings

May 4th, 2012
7:41 pm

Germany isn’t even doing that well with the high tax rates:

“Clocking in just beneath Finland is Germany, with a 45% marginal tax rate on average income workers. Despite having the largest national economy in Europe (and the fourth largest in the world measured by nominal GDP), Germany has effectively traded off having a comprehensive social safety net against more robust economic growth. Its GDP measured by PPP is $35,539 according to the International Monetary Fund – 21st on the list, behind Belgium. As recently as 2007, TheNewEditor.com reported that Germans were emigrating at their highest rate since the 1940′s, resulting in a “brain drain” on the nation’s brightest and most motivated people. As a result of “high taxes and bureaucracy, thousands of Germans have upped sticks for Austria and Switzerland, or emigrated to the United States” — 155,290 during the year in question, which rivals “levels last experienced in the 1940s during the chaotic aftermath of the Second World War.” Furthermore, emigrants are generally said to be highly motivated and educated, while those immigrating to Germany are increasingly poorer and less educated — perhaps more inclined to consume Germany’s generous social benefits.”

http://www.businesspundit.com/12-countries-with-the-highest-lowest-tax-rates/

Zebra

May 4th, 2012
7:49 pm

Only the American right still sells the snake-oil economics of Milton Friedman. It didn’t work here (hello Bush depression) and it won’t work anywhere else, although the bumper sticker appeal of “can’t spend your way out of recession” still attracts those highly educated Limbaugh clones. If the top gets all the money, there is no one left to buy the goods to keep the thing running.

It always was so and it will always be so.

md

May 4th, 2012
7:53 pm

And why is austerity needed in the EU?

http://rwer.wordpress.com/2011/07/14/chart-of-the-day-debt-to-gdp-ratios-for-eu-countries/

And for comparisons sake, our gdp to debt ratio is currently 70%……we aren’t too far behind.

md

May 4th, 2012
8:01 pm

Funny…..it took wide open capitalism to bring China out of the dark ages…….seems to be working just fine for them.

And by the way, that is where the money is going, not up to the 1% as so many here have been told. And guess who is sending that money over there? Yes, that is correct….you, the consumer.

Lil' Barry Bailout (Revised Downward)

May 4th, 2012
8:04 pm

Britain, considered a poster child for the hazards of austerity, hasn’t cut spending at all. It did, however, raise the top marginal tax rate: by 10 percentage points in 2010 and an additional 1 point last year.
————————-

I guess the America-hating left got bored with hating just one country and have branched out into hating the Britain. No surprise that they have to lie to do so.

Lil' Barry Bailout (Revised Downward)

May 4th, 2012
8:18 pm

Zebra: Only the American right still sells the snake-oil economics of Milton Friedman. It didn’t work here (hello Bush depression)
———————-

LOL@Zebra. Equating the “economics of Milton Friedman” with W’s policies screams “I don’t know WTF I’m talking about! Help me fix my ignorance!”

Zebra

May 4th, 2012
8:27 pm

@Lil’ Barry Bailout Is this where I say ditto? Typical idiot Republican…scorn without substance. Call me a slut next, I wanna see all your tricks.

Lil' Barry Bailout (Revised Downward)

May 4th, 2012
8:28 pm

Great article, BTW, Kyle. I’ve been waiting for someone to call BS on this.

Any economy that relies on government spending is not sustainable. Real economies thrive when private enterprise grows and creates jobs and profits, not when government takes money from some citizens and gives it to people who contribute nothing to society.

Stephenson Billings

May 4th, 2012
8:30 pm

Yes, 56 straight months of positive economic growth and statistically “full employment” was such a “failure”. Of course, I guess the libs think if they repeat it often enough, more people will believe it.

Rafe Hollister

May 4th, 2012
8:33 pm

Zebra
“can’t spend your way out of recession” still attracts those highly educated Limbaugh clones. If the top gets all the money, there is no one left to buy the goods to keep the thing running.

What does the second sentence have to do with the first?

Rafe Hollister

May 4th, 2012
8:39 pm

Zebra
A better look at Milton Freeman economics would be the Reagan years. One month during the Reagan years we created over 1 million jobs. Oblama and his Keynesian economy are creating 130,000 a month. It would be easier for Oblama if he looked for things that work, instead of things that fit his agenda.

Stephenson Billings

May 4th, 2012
8:43 pm

I think Zebra just has his Media Matters/liberal talking points all jumbled….

Lil' Barry Bailout (Revised Downward)

May 4th, 2012
8:44 pm

Zebra: If the top gets all the money blah blah…
———————-

Zebra, is median household income higher or lower than it was twenty years ago? Forty years?

Lil' Barry Bailout (Revised Downward)

May 4th, 2012
8:52 pm

Median household income during the deepest part of the recession, 2008, was $50,939.

In 2010, two years into the Obozo regime and well after the end of the recession, $49,445.

We were better off when our President Bush was President.

Dusty

May 4th, 2012
9:05 pm

I would suggest we stop calling any program to cut debts as “austerity programs”. To stop spending money is the simple way of doing it without even giving it a name. Do you need an economist to tell you that?.

Since it is government, we could call it the STOP SPENDING PROGRAM. It is not an austerity program is you have nothing to be austere about. Broke! As in Greece. Trillions of dollars in debt is BROKE!. We stop spending now so we won’t reach austerity.

Raising taxes means the government has not stopped spending. It means they want more money because they refuse to respond with economy. Stop giving them money to waste.

I don’t care what they do in Europe. Only should we observe Greece. They flunked out and we will too if changes are not made. Stop spending! It will affect every citizen but not as bad as a former depression. We will go back to being responsible for our own needs and less on government.

The president and Congress should set the example. If not, they will be blamed and rightly so. They were elected to serve this country, not run it into debt. Be practical. We need sensible action NOW.

Karen

May 4th, 2012
9:23 pm

I will take Krugman over Wingfield any day.He has been refreshingly correct about the problems in the US, but no right winger will ever be able to adnit that fact.

Lil' Barry Bailout (Revised Downward)

May 4th, 2012
9:27 pm

Obozo did what Krugman advised in 2009 with his $800 billion stimulus.

Unemployment went UP.

Median income went DOWN.

Krugman should send his Nobel to Kyle.

Road Scholar

May 4th, 2012
9:29 pm

“We were better off when our President Bush was President.”

Yeah right! esp in 2007 and 2008!

Zebra

May 4th, 2012
9:31 pm

You don’t get your own facts, The deepest part of the recession was not at the beginning in 2008. Nice try but that is Limbaugh level stupidity.

Only Keynesian theory can save us. Giving Paris Hilton tax breaks to invest in India and China (GOP policy) sure won’t fix a thing.

Stephenson Billings

May 4th, 2012
9:40 pm

“Only Keynesian theory can save us”

Well I guess there’s a first time for everything :rolleyes:

Lil' Barry Bailout (Revised Downward)

May 4th, 2012
9:40 pm

Road Scholar: esp in 2007 and 2008!
———————-

Unemployment was a mere 6-7% in 2007 and 2008, the recession years. Deficits were, what, $300 billion?

How did Obozo blow it so badly?

Oh, right–obscene spending, increased regulation, a steady drumbeat of business-bashing, Obozocare, lower household income, record numbers on the dole, and uncertainty on tax rates.

Obozo: Inferior to our President Bush.

Tiberius - Banned from Bookman's and proud of it!

May 4th, 2012
10:03 pm

Great article, Kyle.

What a shame that liberals can’t handle the facts over their rhetoric.

td

May 4th, 2012
10:17 pm

Do libs call stopping the automatic rate of growth in Federal programs as an austerity cut?

yuzeyurbrane

May 4th, 2012
10:19 pm

Kyle, I admire your persistence in continuing to joust against Krugman on economic issues. Bottom line is that his interpretation of situation is right and yours is wrong and he is just a lowly Nobel Prize winner in Economics and you are? As a matter of fact, Krugman is too modest to claim it, but he has been right about almost everything re the economy since 2008, even when he has criticized Obama policies which he has done on many occasions. I’d say he calls them like he sees them. I think you do, too, but, not to rub it in, I would take his cred on economics over yours any day.

Jms

May 4th, 2012
10:38 pm

Yes td. Libs and most politicians consider slowing the rate of increase in spending to be a cut in spending.

RGB

May 4th, 2012
10:49 pm

Kyle is described as “Political commentary from The Atlanta Journal-Constitution’s 30-something conservative.”

Did they ever describe Cynthia (God rest her soul) as “Political commentary from the Atlanta Journal-Constitution’s aging black leftist”?

On another note–Re: “Only Keynesian theory can save us.” Has sure helped Greece and France and Spain and Italy. [s n i c k e r]

Was just wunderin’.

Ayn Rant

May 4th, 2012
11:10 pm

Why deny the evidence of the last 100 years by clinging to the preposterous dogma that a nation can dig its way out of recession by killing jobs. Jobs are created by pouring capital into the economy, whether by private investors who seek security and a fair rate of return on their investment, or by government spending of tax revenue and borrowed capital.

In the present US recession, there are not enough jobs to create the consumer demand needed for secure and profitable investment of capital. Consequently, jobs must be created by government spending, or the economy will slide further into recession, and eventually, into depression. The current Republican hypocrisy about reducing government borrowing and spending would tank our economy; that’s why no Republican administration has tried it. Clinton was the first and only President to balance the federal budget since President Carter left office.

And why lump Greece and Portugal with the developed northern European economies for the sake of argument? Kyle, you know very well that the economies of Germany, the Scandinavian countries, and the UK are not at all like Greece and Portugal. The UK is experiencing a second round of recession due to decreased government spending, “austerity”. Germany, Netherlands, and the Scandinavian countries are doing very well, thank you, with steady economic growth and low unemployment.

Dusty

May 4th, 2012
11:14 pm

yuzeyurbrane 10:19

Not to rub it in, but you do realize that no one seriously cares whose cred you take on economics. You are just another blogger on this opinion line of unknowns. Capiche?

Dusty

May 4th, 2012
11:27 pm

Ayn Rant 11:10

Ohhhhh..a Whippinpoof right out of the White House as she pontificates “Jobs must be created by government spending”!!! This is the sister statement of “Only trillion dollar debts can be created by government spending!”

Please return to Washington, Aynie. The rest of the country already knows about government spending. You need to return to D.C. for the great awakening at the next election.

Cutty

May 4th, 2012
11:32 pm

Kyle trying to dispel something that Paul Krugman wrote is like Jon Koncak trying to guard Michael Jordan.

Cutty

May 4th, 2012
11:37 pm

jd

May 5th, 2012
6:05 am

It’s amazing how columnists can reduce economic theory to one or two variables, use mixed measurements (a percentage increase in tax rate is not the same effect as a change in spending as percentage of total budget), and be smarter than economists who work with models using dozens of variables shown reliable in understanding the many, inter-related, effects within an economy. You guys do the public a disservice — the equivalent of giving social promotions to students who did not learn what they need to know.

Ray

May 5th, 2012
6:07 am

401(k)s values in this country just reached a 12 year high, despite the recent difficultly in the economy, and employer’s are not matching funds like they use to. Even though nothing has been done to reduce the high tax rates of normal earnings from these investments; all 401 (k) earnings and contributions made to 401(k)s are taxed, 100% as ordinary income when distributed and there is no certainty what the tax rates will be when the monies are distributed, the average Joe Blow in this country manages to overcome all this so called “fear of uncertainty” the GOP talks up. Good on them!!!! If the “Chicken Littles” would be quiet for a little bit, or just get out of the way, those brave enough to take risk will get the job done. We are in a recovery.

Instead of lowering the top tax rates, why don’t we reduce taxes on 401(k) distributions to say a 15% max.? Imagine how much more money would be invested in this country, and how much fairer this would be. It would take all uncertainty out of the equation, so 401 (k) investors, who purport to be GOPers could plan, too.

Jms

May 5th, 2012
6:34 am

Ray,
Most can’t tap their 401ks until retirement age. Are you saying we should suspend the early withdrawal penalty too or is your plan only for retirees?

And what does get out of the way mean? Explain how one person’s fear of uncertainty prevents someone else from taking whatever risks they’d like.

Jms

May 5th, 2012
6:37 am

Cutty, wasn’t Koncak’s nickname “contact” for all the fouls he committed because he couldnt move his feet?

Jms

May 5th, 2012
6:38 am

Ayn, you do understand the link between Clinton’s balanced budget and the Internet bubble, don’t you?

Lil' Barry Bailout (Revised Downward)

May 5th, 2012
6:41 am

Ayn Rant: Why deny the evidence of the last 100 years by clinging to the preposterous dogma that a nation can dig its way out of recession by killing jobs.
———————–

There are a million fewer jobs today than when Obozo took office. Perhaps you’re on to something.

Obozo’s economic policy: Preposterous.

Lil' Barry Bailout (Revised Downward)

May 5th, 2012
6:44 am

Krugman believes there’s a “war on women” and that the national debt should be increased to 130% of GDP (about double what it is now).

‘Nuff said.

Tiberius - Banned from Bookman's and proud of it!

May 5th, 2012
7:04 am

“Why deny the evidence of the last 100 years by clinging to the preposterous dogma that a nation can dig its way out of recession by killing jobs.”

OR the reality: “Why deny the evidence of the last 3 years by clinging to the preposterous notion that a nation can deficit spend their way out of a recession by driving up debt equal to 1/3 of it’s GDP.”

Lil' Barry Bailout (Revised Downward)

May 5th, 2012
7:23 am

Germany, Netherlands, and the Scandinavian countries are doing very well, thank you, with steady economic growth and low unemployment.
——————-

Germany and Sweden have cut income tax rates, and Norway is drilling like crazy for oil and gas, thank you.

MarkV

May 5th, 2012
7:24 am

“Not to rub it in, but you do realize that no one seriously cares whose cred you take on economics. You are just another blogger on this opinion line of unknowns. Capiche?”

Wouldn’t it be better if people thought before writing such criticism?

The Kid

May 5th, 2012
7:30 am

This bailout guy is smelling his pee. Under the administration of GED Bush and Chicken Hawk Cheney the wars were off the books so come on cutie-pie; blow it up yo arse. Those clowns almost destroyed America and you stupid so-called conservatives have the nerve to even open your mouth.