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by ColdStream
2 days ago
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I have seen many economists argue that austerity is the first sign of a country down turning, funnily enough these are usually also the same people that advocate for smaller government to allow the "free market" to do its thing. Try squaring that circle. But your proposition while intuitive and seems reasonable does seem a little reductionist. Many look for a single variable that can explain their predicament but that can crush away any nuance that may also be useful. Just because government spending can be high doesn't mean it will necessarily benefit you if you move there, it isn't always spread equally or at least somewhat fairly. |
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The small government types prioritize low taxes (especially on capital and business), they aren’t particularly concerned about spending except to the extent necessary politically to attain low taxes.
Austerity typically features cuts in spending without cuts in taxes—and often with hikes in taxes—to balance government cash flows. They aren’t the same thing at all. The only thing wrong about calling it “the first sign of a down turn” is that austerity is pretty invariably resorted to very late in a down turn after everything else has failed and government credit has either seen drastically worse terms or completely dried up. Heck, often it is imposed by institutions like the IMF as a condition for a bailout, which is very much a very late in a downturn recourse.