CEI - Not All Austerity Is Equal; We’re following Britain ’s failed path, not Estonia’s successful one

CEI's Warren T. Brookes Journalism Fellow, Matthew Melchiorre, has written an illustrated analysis for National Review on how austerity policies in Europe compare with one another and with the U.S. fiscal situation. I thought you might find it of interest (see excerpted below).

Let me know if you would like to speak with him about this, or perhaps forward to your contacts who would be interested?

CEI Communications Director 

Not All Austerity Is Equal; We’re following Britain’s failed path, not Estonia’s successful one.

by Matthew Melchiorre

Prominent economists, politicians, and pundits throw around the term “austerity” as if policies by that name always take the same form. They usually use the term to criticize the concept and its effects by pointing to Europe’s stagnation at the hands of “savage” cuts in government spending. But this mindset ignores the question: Austerity for whom? The answer is especially important if the United States, which has continued to follow in Western Europe’s footsteps with this month’s fiscal-cliff deal, is to learn from the Old World’s mistakes.

Raising taxes on the private sector while government continues to gorge itself on tax-and-spend policies does not bring prosperity. Businesses undergo austerity by way of the recession-induced reduction in demand for their goods and services, yet the public sector doesn’t feel the need to tighten its own belt commensurately. Increasing the public burden upon the private sector only compounds what is already a harsh business environment.  This is what most European nations have tried as their “austerity” programs, and they continue to suffer because of it.

On the other hand, the proper form of austerity closes a fiscal gap by reducing the burden of the state upon the already struggling private sector and cutting spending; this does bring prosperity.

Unfortunately, most European austerity programs fall into the first category, but they are commonly and mistakenly associated with the second.

To illustrate, let’s compare the United Kingdom’s austerity program, a frequent punching bag for the anti-austerity crowd, with that of Estonia, a lesser-known but highly successful model of austerity. Unsurprisingly, anti-austerity politicians and activists never mention the case of Estonia when they clamor for more Keynesian stimulus spending.

> View the full commentary on Nationalreview.com