The Austerity Ruse

Olli RehnThis morning, Paul Krugman correctly noted, The Austerian Mask Slips. In it, he referred to an article yesterday by Simon Wren-Lewis, France and the Commission. The European Union has a Fiscal Compact that requires all countries to reduce their budget deficits to 3% in the next two years. France is in the process of doing this.

Now I don’t think this is a good thing. For the umpteenth time: an economic downturn is not the time for governmental austerity. Most of France’s budget deficit is from the economic downturn, not from increased spending. Pro-growth policies will fix the budget problems. Austerity policies do not work that well because they reduce demand and thus economic activity. I’m not an economist, but I understand this because I took Econ 101. Also: I don’t have an ax to grind.

But okay, France is doing what the Fiscal Compact wants. So the austerity crowd should be cheering, “Hooray for France!” But no. The European Commissioner for Economic and Monetary Affairs, Olli Rehn is not happy at all. You see, France is not closing its budget deficit the right way—the way that Rehn wants it to be cut. France has been raising taxes rather than making savage cuts to government spending. Rehn said, “Budgetary discipline must come from a reduction in public spending and not from new taxes.”

This is pure bait and switch. It is also something that I’ve been writing about for a while as it relates to the United States. People like Olli Rehn are not interested in budget deficits. They just use the idea of budget deficits because it is a way to sell what they really want: low taxes on the rich and small governments. What choice do they have? People really like government programs and they really don’t care about the taxes of the rich.

It is also the case that this idea of low taxes and small government is a really bad idea. It dates back to a time when the world was much simpler. There are very good reasons why governments are bigger and it has nothing to do with resentment of the rich. In fact, the rich have their money thanks to the stability that our governments provide. It reminds me of Daniel Davies principle of good ideas and truth:

Good ideas do not need lots of lies told about them in order to gain public acceptance.

Due to their great power and their aggressive use of lies, the austerity crowd has been able to test their ideas for the last five years. And their ideas have failed miserably. But we continue to hear them pushed with the usual Milton Friedman to Chile refrain, “There just hasn’t been enough austerity!”

But more and more, we see examples like that from Olli Rehn. As Krugman noted: the mask slips. They show what they are really all about. And it has nothing to do with deficits.

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About Frank Moraes

Frank Moraes is a freelance writer and editor online and in print. He is educated as a scientist with a PhD in Atmospheric Physics. He has worked in climate science, remote sensing, throughout the computer industry, and as a college physics instructor. Find out more at About Frank Moraes.

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