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The Spectacle Blog
We are hearing a great deal at the moment about government austerity, especially in Europe, as various states attempt to deal with massive budget crises resulting from a combination of low growth, bad demographics, and overly rich welfare programs. European Central Bank president Mario Draghi recently gave an interview to the Wall Street Journal in which he made things quite clear:
WSJ: Austerity means different things, what’s good and what’s bad austerity?
Draghi: In the European context tax rates are high and government expenditure is focused on current expenditure. A “good” consolidation is one where taxes are lower and the lower government expenditure is on infrastructures and other investments.
WSJ: Bad austerity?
Draghi: The bad consolidation is actually the easier one to get, because one could produce good numbers by raising taxes and cutting capital expenditure, which is much easier to do than cutting current expenditure. That’s the easy way in a sense, but it’s not a good way. It depresses potential growth.
Draghi’s insight is one American policymakers need to understand. If the government is spending a great deal of money simply to put dollars in people’s pockets, pay salaries, etc., then we are not getting nearly the good we could obtain with better government spending AND we go bust trying to afford it. The superior situation is one in which you can keep taxes low and government spending is on items that last and have the potential to spur growth into the future.
For example, consider the difference between a government paying for things like the interstate highway system or the Tennessee Valley Authority mechanisms of energy generation versus a government that sends out a lot of entitlement checks. The first government will see substantial returns over the long run. The second one is mostly just poorer at the end of the year.
In America, we used to have a government of the first type, but we increasingly have a government of the second type. I opposed the president’s nearly $1 trillion stimulus package, but it would have been a lot easier to swallow if it had been aimed at some truly valuable investment such as reinforcing America’s physical infrastructure (highways, electrical grid, etc.) rather than simply trying to push out cash as quickly as possible.
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More Blog Posts by Hunter Baker
http://spectator.org/blog/2012/02/24/why-some-government-spending-i
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Doug| 2.24.12 @ 3:54PM
This falls into the argument I have been pressing with Democrat acquaintances: we need to set priorities for govt spending. We have limited funds - what should we spend them on? And this question should be asked of EVERY candidate for office.
albert constantine jr.| 2.24.12 @ 10:56PM
Thirty years of working in the government leads me to believe that with regard to infrastructure spending (the first type Mr. Baker refers to), the private sector shares some blame in trying to suck up taxpayer funding with limited value when it gets the chance.
With regard to what Mr. Baker describes as the second type of funding, the primary value seems to be to delay the result of an often dysfunctional lifestyle.
FeFe| 2.24.12 @ 11:26PM
Harmonization? But the author, Mr. Baker, appeals to "policymakers" and not the American people. The ECB president, Mr. Draghi, beams "a new world for Greece" but "prevalent" public opinion he takes from polling while refusing the people a vote. Yet, as "European governments are starting to release national sovereignty" the peoples have no treaty against inflation suppression of nationalism. Fiscal consolidation, Mr. Draghi generously admits, "is contractionary in the short term" but he, and those American policymakers, wont be taking the hit in their standard of living. But fear not, for these utopian masterminds will command the product, services, and labour markets from on high, all with an accommodating eye to anti-social youth unemployment rates. Harmonization of the financial status quo, appeasing the stock market with outsourced legislation, pre-approved by parliaments. No one has any money, but by all means let's understand the difference between good, and bad, stimulus and austerity spending, in dollars and that honeypot of a currency, the euro.
How about this "insight"? The world understands the Greeks have accepted financial defeat at the hands of Germany and France, as the troika brings overseer humiliation. The EU balked at inflicting a defeat in Afghanistan, let alone humiliation to tolerance over their human dignity record, so moral equivalence currently kills 12 over burning a koran. You see, representative social harmonization impedes central fiscal harmonization and monitoring power. Is it any wonder as Dodd-Frank gets regulated to harmonize US markets with the forthcoming EU morphing Financial Union, there's relentless statewide same-sex "marriage" agitation across, not the ballot box, but the halls of power?