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
Oh, Stinch of Irony on Monday morning
May 7th, 2012
8:58 am
Barry
You could be correct, but a day or even a week of stock market increases or decrease isn’t a definitive answer to any economy going down or up……..
It may very well could be a sign, but I would caution you on just looking at that…….
If the stock market goes down one day here in the US, do you sell off all of your stocks and mutual funds?
Lil' Barry Bailout (Revised Downward)
May 7th, 2012
9:00 am
Of course I’m basing it on the stock market. I already told you that. Please try to keep up.
Oh, Stinch of Irony on Monday morning
May 7th, 2012
9:03 am
Ok
Just on the stock market………… hmmmmmmmmmmmm
Bet you are a savvy investor to base economic decision and trends just off of a swing in a stock market……
real savvy…………
Have a great day
Lil' Barry Bailout (Revised Downward)
May 7th, 2012
9:05 am
The conventional wisdom among the big-government types was that austerity was hurting the economy. Well, they got their wish (more socialism). Why didn’t the market go up?
Oh, Stinch of Irony on Monday morning
May 7th, 2012
9:08 am
Barry
Reread my 8:58…….. You could be correct. With that said it is ignorant to base a decision off of a short period of stock market increases or decreases without much else
If it is all about the stock market, than the US economy should be doing much better; and you and I both know better.
Oh, Stinch of Irony on Monday morning
May 7th, 2012
9:10 am
If markets are trending up at the end of the week, are you going to say you were wrong?
Of course not, because COMMON SENSE tells you that time is going to tell the story, not one day or week.
Hand in there Barry. You have a good spark to you, even if facts are not always your friend.
Keep working at it
Grasshopper
May 7th, 2012
9:26 am
But Krugman is a genius Kyle. All of the commenters on his NY Times blog will tell you so.
Steve
May 7th, 2012
9:32 am
Krugman has been historically, the most accurate pundit in recent years and data has proven that…
“What’s wrong with the prescription of spending cuts as the remedy for Europe’s ills? One answer is that the confidence fairy doesn’t exist — that is, claims that slashing government spending would somehow encourage consumers and businesses to spend more have been overwhelmingly refuted by the experience of the past two years. So spending cuts in a depressed economy just make the depression deeper.
Moreover, there seems to be little if any gain in return for the pain. Consider the case of Ireland, which has been a good soldier in this crisis, imposing ever-harsher austerity in an attempt to win back the favor of the bond markets. According to the prevailing orthodoxy, this should work. In fact, the will to believe is so strong that members of Europe’s policy elite keep proclaiming that Irish austerity has indeed worked, that the Irish economy has begun to recover.
But it hasn’t.”
Krugman
Steve
May 7th, 2012
9:34 am
Beware of Barry – he loves to spout off right wing talking lies/points, and spin data.
Steve
May 7th, 2012
9:35 am
Harold Meyerson gives ill-timed austerity a kick, too:
“Nor is the emphasis on growth over austerity limited to the left. Italy’s technocratic prime minister, Mario Monti, who was installed to put his nation’s fiscal house in order, now argues that growth must precede austerity. The millions who marched down Europe’s boulevards on May Day concur. A mass movement for Keynesian economics is sweeping Europe, though Merkel’s Germany still is determined to thwart it — at least, until its order books grow skimpy.
The United States has austerity demons of its own, of course. While the private sector has rebounded somewhat from the 2008-09 collapse, creating 4 million jobs since the turnaround began in 2010, state and local governments have shed 611,000 employees — including 196,000 teachers — since President Obama took office, The Post’s Zachary A. Goldfarb reported. The shrinking of government ranks high among the drags on the U.S. recovery. The 2009 stimulus provided funding to states and cities that enabled them to keep many workers on the job, but when that funding began running out in 2010, layoffs, particularly among teachers, redoubled.”
Oblama
May 7th, 2012
9:48 am
OblamaNation is upon us…….. COMING SOON hyper inflation due to the $7,000,000,000 flooding the market by the Oblama administration. $10 gas within 2 years. Your check will still come in the mail but the bank won’t cash it. Fed’s credit card will soon max out. Congrats! You got what you voted for!!!
Tiberius - Banned from Bookman's and proud of it!
May 7th, 2012
10:00 am
“Krugman has been historically, the most accurate pundit in recent years”
An Krugman will tell you that all day long . . .
But saying it and actually being accurate are two different things.
Lil' Barry Bailout (Revised Downward)
May 7th, 2012
10:00 am
Steve: Beware of Barry – he loves to spout off right wing talking lies/points, and spin data.
——–
Obozo’s record: three years of 8-10% unemployment, record deficits, record spending, record number of folks on the dole.
Spin THAT.
Tiberius - Banned from Bookman's and proud of it!
May 7th, 2012
10:15 am
If I were Obama, I’d fire my campaign manager.
Did they really think that officially launching his re-election campaign on the anniversary of Karl Marx’s birthday would have gone unnoticed?
Lil' Barry Bailout (Revised Downward)
May 7th, 2012
10:32 am
You have to not notice a lot of things to be an Obozo supporter, Tib.
Rafe Hollister
May 7th, 2012
10:38 am
This new French regime is going to be the best thing ever to happen to the USA. We get to watch in advance what is going to happen if Oblamer is reelected. I think in the next few months we will see the rich headed for the high ground in Britian and Belgium as already high taxes are increased (75%?).
We will see massive indebtedness grow and the influence of China rise. More government programs and make work jobs for the proletarians. Business pulling back and looking to move out of the country.
The first thing the new regime will have to do is pass laws restricting free movement of cash, people, and business out of the country.
Our media will only cover the excitement of the proletarians as they are issued their new jobs and rejoice in the small increase of income. We will have to look elsewhere to find the true picture of the harm being done.
Just saying..
May 7th, 2012
10:41 am
Lil’ Barry Bailout (Revised Downward)
May 7th, 2012
7:13 am: A socialist France–easier to dominate economically, but an even more worthless ally militarily.
Any thoughts as to who is actually paying the freight to protect France militarily?
Rafe Hollister
May 7th, 2012
10:43 am
the anniversary of Karl Marx’s birthday would have gone unnoticed?
I think it has, as the MSM nor Fox News has pointed that out. Wonder why? Hah, hah!
Glad you pointed it out Tiberius, where did you find it, had to be a GOP party source?
Just saying..
May 7th, 2012
10:52 am
Tiberius – Banned from Bookman’s and proud of it!
May 7th, 2012
10:15 am: Did they really think that officially launching his re-election campaign on the anniversary of Karl Marx’s birthday would have gone unnoticed?
Oh, snap. Tib reveals the long sought smoking gun on the pinko/socialist/ Marxist conspiracy.
Tiberius - Banned from Bookman's and proud of it!
May 7th, 2012
10:58 am
Boortz, of course, Rafe.
And “Just saying”, you’ll note that YOU were the one bringing up conspiracy, not me. I was pointing out the irony and the stupidity of scheduling in that particular post. Sorry that the obvious was lost on you due to your partisan blinders being on 24/7.
Just saying..
May 7th, 2012
11:11 am
Tiberius – Banned from Bookman’s and proud of it!
May 7th, 2012
10:58 am: And “Just saying”, you’ll note that YOU were the one bringing up conspiracy, not me.
Keep digging…
Tiberius - Banned from Bookman's and proud of it!
May 7th, 2012
11:19 am
Keep denying . . .
DannyX
May 7th, 2012
12:10 pm
Thank you President Obama for lowering gas prices.
getalife
May 7th, 2012
12:12 pm
Socialist is not a dirty word.
Austerity is a dirty word.
You are going down willard.
Tiberius - Banned from Bookman's and proud of it!
May 7th, 2012
12:12 pm
DannyX, please articulate one Obama piece of legislation passed or policy changed which has contributed to lower gas prices.
getalife
May 7th, 2012
12:15 pm
Gas prices are dropping.
Thank you President Obama.
Oh, Stinch of Irony on Monday morning
May 7th, 2012
12:15 pm
Danny
Any President receives too much blame or credit for gas prices
You do not that, right?
It is the nature of the beast that Bush was blamed, Obama was blamed, etc………. In reality they can not do much to impact the price. Surely not has much as their constituents want to believe
Blaming or crediting the President for gas prices is for the shallow minded
Tiberius - Banned from Bookman's and proud of it!
May 7th, 2012
12:23 pm
Ditto for you, getaclue.
Tiberius - Banned from Bookman's and proud of it!
May 7th, 2012
12:26 pm
Irony, there are many ways through legislation, regulations or policies where Presidents may accurately be credited with higher or lower gas prices.
None such exist for this administration, however. At least not for lower gas prices.
getalife
May 7th, 2012
12:29 pm
Go over to Europe and tell them austerity did not fail.
Good luck with that.
The con movement is over,
It failed.
getalife
May 7th, 2012
12:32 pm
Our President gained 4.2 million jobs.
w lost over 8 million jobs.
This choice is easy.
willard is going down.
I Report (-: You Whine )-: mmm, mmmm, mmmmm! Just sayin...
May 7th, 2012
12:34 pm
But Seibert said Merkel would not accept “deficit spending” to feed economic expansion, and believed in “growth through structural reforms” such as reducing the cost of job creation as pursued by Germany over the last decade.
Notice which one of these two could wipe the other one off the map at any time they choose to do so, in fact, the blubbering idiot french have already spent much of their history as German slaves.
This is what happens when you punk your own economy.
Joe the Prophet
May 7th, 2012
12:40 pm
Oblama
May 7th, 2012
9:48 am
OblamaNation is upon us…….. COMING SOON hyper inflation due to the $7,000,000,000 flooding the market by the Oblama administration. $10 gas within 2 years. Your check will still come in the mail but the bank won’t cash it. Fed’s credit card will soon max out. Congrats! You got what you voted for!!!
————————
COMING SOON….S-O-C-I-A-L-I-S-M….Brought to you by Mitt Romney, Paul Ryan, and the Tea Party….Noboby likes spending cuts, nobody wants them……GW Bush sure didn’t like them, nor did John Boehner, Mitch McConnell, nor Eric Cantor……
I’m not voting for Romney anyway, because I am a Christian and don’t care for polygamists nor polytheists….but the right-wing idealogues who think that spending cuts will solve America’s problems had better take a look across the pond……
President Bill Clinton was the last president in the last 30 years to grow the economy and reduce the deficit…..even Reagan didn’t do that…….I know Clinton’s not running, but I’ll sure listen to what he has to say before I listen to boneheads like Grover Norquist, Paul Ryan, and Mitt Romney…..
Joe the Prophet
May 7th, 2012
12:41 pm
Nothing wrong with tax cuts if you can pay for them…..but I don’t see that happening as long as the “job creators” are shipping jobs to China and Mexico….
getalife
May 7th, 2012
12:46 pm
It is over cons.
Your lies and deflections will not work.
But stay the course, it is all you got.
Joe the Prophet
May 7th, 2012
12:47 pm
Rafe Hollister
May 7th, 2012
10:38 am
———————–
We can speculate as to the success of Socialism….we can hope…we can dream….but the only thing we know for sure is that austerity failed in France. Period.
That should be enough to change some Tea Party hardliners’ views in America. Probably won’t…but the facts are what they are…..Now if Socialism were to actually show some benefit…I think more folks than that in the U.S. may change their minds…especially when they recall what has happened over the past 20 years……
Clinton….Growth, surplus……..Bush…..Recession, collapse, deficit
Tiberius - Banned from Bookman's and proud of it!
May 7th, 2012
12:48 pm
“Our President gained 4.2 million jobs.”
Lie.
“w lost over 8 million jobs.”
Lie.
I Report (-: You Whine )-: mmm, mmmm, mmmmm! Just sayin...
May 7th, 2012
12:51 pm
GUANTÁNAMO BAY, Cuba — Khalid Shaikh Mohammed fingered his long, henna-dyed beard and stared down in silence on Saturday, pointedly ignoring a military commissions judge asking in vain whether the self-described architect of the Sept. 11 attacks understood what was being said and whether he was willing to be represented by his defense lawyers.
In the Bush military justice system this punk would have been strapped to a board, shackled, muzzled and his eyelids pinned open so that he could see the judge and acknowledge his questions with grunts or perhaps squeals.
In the obozo military justice system this subhuman abomination sneers at the higher life forms before him and humiliates the United States of America.
Kinda sounds like he’s a socialist too, don’t it?
md
May 7th, 2012
1:00 pm
Well…..looks as if Greece may vote to end austerity in an effort to once again spend their way out of their mess……begs to question where in the world do they expect to borrow the money to spend??
md
May 7th, 2012
1:08 pm
“.but I don’t see that happening as long as the “job creators” are shipping jobs to China and Mexico….”
Actually, it is you, joe the consumer that is shipping jobs overseas…….do not buy it and it will not come.
But, it’s much easier to buy it and then bitch about others…………
getalife
May 7th, 2012
1:11 pm
“The Germans, needless to say, don’t like this conclusion, nor does the leadership of the central bank. They will cling to their fantasies of prosperity through pain, and will insist that continuing with their failed strategy is the only responsible thing to do. But it seems that they will no longer have unquestioning support from the Élysée Palace. And that, believe it or not, means that both the euro and the European project now have a better chance of surviving than they did a few days ago.”
When was kyle right about anything?
getalife
May 7th, 2012
1:13 pm
Andy,
The trial is a joke because of torture.
Ernest T. Bass
May 7th, 2012
1:24 pm
Gas prices are going down now thanks to Obama.
I mean it was his fault when they were going up right ?
getalife
May 7th, 2012
1:28 pm
The truth about spending:
http://www.ritholtz.com/blog/2012/04/hey-big-spender-2/
Finn McCool (The System isn't Broken; It's Fixed)
May 7th, 2012
1:29 pm
If government slices spending too early, when unemployment is high and growth is slowing, it makes the debt situation far worse.
That’s because public spending is a critical component of total demand. If demand is already lagging, spending cuts further slow the economy – and thereby increase the size of the public debt relative to the size of the overall economy.
You end up with the worst of both worlds – a growing ratio of debt to the gross domestic product, coupled with high unemployment and a public that’s furious about losing safety nets when they’re most needed.
The same thing Krugman has been saying for 5 years.
http://www.salon.com/2012/05/07/europes_austerity_revolt/
Finn McCool (The System isn't Broken; It's Fixed)
May 7th, 2012
1:32 pm
To extend what md was saying:
Actually, it is you, joe the consumer that is the true job creator!
Wealthy people don’t create jobs, consumers and demand create jobs. If the wealthiest cat in the world started a buggy whip factory and hired 10,000 people, how long would they remain in business without demand from consumers?
Now, wealthy people do help provide jobs by steering their money as capital to where demand is highest. But without demand, you got nothing.
Just saying..
May 7th, 2012
1:35 pm
Tiberius – Banned from Bookman’s and proud of it!
May 7th, 2012
12:12 pm: DannyX, please articulate one Obama piece of legislation passed or policy changed which has contributed to lower gas prices.
It was a joke, Tib.
Part !: For days folks shrieked here over gas going to $5, end of the world, Obama’s fault…
Part 2: Gas prices go down, and DannyX observes that there’s no cons posting here that it’s Obama’s fault.
Part 3: Smile over irony of tunnel vision partisans.
Ease up Tib. You’re confident of showing up here smiling on Nov 7.
Aren’t you?
md
May 7th, 2012
1:36 pm
“If government slices spending too early, when unemployment is high and growth is slowing, it makes the debt situation far worse.”
Yep…..Greece has been hanging their hat on that one for awhile now…….
Austerity is the result of spending, not the other way around.
I Report (-: You Whine )-: mmm, mmmm, mmmmm! Just sayin...
May 7th, 2012
1:38 pm
gitmo- The trial is a joke because of the lack of torture.
Even the french would do a better job than we are, geez.
Hang that savage upside down by his feet, see if he keeps up with the giggling.
md
May 7th, 2012
1:41 pm
It’s a 2 way street……demand can not exist without a product……which takes capital to produce.
We can all demand solar powered personal airplanes, but until the capital is expended to fund/create/produce said product, that demand may as well not exist.
But, in the case of shipping jobs overseas…..it is us doing that. We don’t buy the products, they will not be made overseas or anywhere else.