Is Austerity to Blame for Europe's Economic Woes?

From Nobel laureate Paul Krugman to the free-market-friendly Economist magazine to former Treasury Secretary Lawrence Summers, all sorts of experts are charging that financial austerity measures are killing the great economies of Europe. "Austerity Is So Wrong!" reads the headline of a Krugman piece at The Daily Beast that argues against cutting government spending during weak economic times.

But the critics of austerity have got it all wrong, says Mercatus Center economist and Reason columnist Veronique de Rugy. For starters, many European countries haven't cut spending at all and, among the ones that have, most have made relatively minor trims while also hiking taxes. That's known as "the balanced approach," notes de Rugy, and it almost never works to reduce debt-to-GDP ratios or get economies moving again. Yet critics of cutting government spending in a weak economy ignore academic research showing that significant spending cuts, structural reforms to entitlements, and loosening labor regulations are proven ways to reduce debt loads and get countries moving again.

De Rugy talked with Reason's Nick Gillespie about austerity and its discontents - and what the United States could learn from Germany's economic reforms made earlier this century.

About 7 minutes long. Produced by Jim Epstein; camera by Epstein and Meredith Bragg.

Go to http://Reason.tv for downloadable versions and subscribe to Reason's YouTube channel to receive automatic notification when new material goes live.

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[aSingleDallasGuy]

This reminds me of how liberals blame the sequestration on things that happenned before they took place. I can't tell you how many liberals fire back over Benghazi and claim the consolate had insufficient security because republicans somehow forced the sequestration. Even though Benghazi on 9/11/2012 took place before the sequestration. And on top of that the sequestration was Obama's idea and he signed the sequestration bill into law! LOL

[jon henry]

The austerity is about u something more valuable than money people by controlling economicly enslaving u hold power with no threats u can break peoples backs do what ever u please to them youll be worked to death your sacrifice isnt 4 your country its for something more important to serve and benefit the elite austerity is great 4 the wealthy of thier exploitation of poor Obama being a black man knows this well get it eu youre fucked there allways has to be a sacrifice 4 the elite sad but true

[LOL12349498]

FUCK EUROPE, LET EUROPEANS STARVE TO DEATH. DIE YOU MONKEYS!!!

[RedXlV]

What this proves is that there's no economic benefit to deficit reduction.

[gnolhsobners]

Civil liberties implies personal responsibility though. You should deal with the consequences of a poor diet. People are shielded from these costs, thus they continue these dangeous activities. Our whole philosphy revolves around getting people to behave responibly by realizing that there are consequences. Consequences shape behavior. Obesity is a huge problem and it is spurred on by the governments obscenely stupid nutritional guidelines.

[gnolhsobners]

You leave out some things in your analysis. What is the cost of someone who has a boo boo that doesn't seek any treatment? 0. What is the cost of me going to a medical provider saying "my back hurts"? Every boo boo medical visit i have ever went to was a complete waste of my time, and insurance money. This is one of many reasons why people need to be at least partially responsible for their bodies. Again, those that "cant" get charitable support.

[gnolhsobners]

I largely agree, BUT can you reasonably cut costs without unintended consequences? Say you cut payments to medical providers enough to keep Medicare in the black, then you have many many billions of less income for these people. What is the repercussion to this? Whatever it is, people need to know what level of entitlements they are to actually receive, that way they can appropriately plan for retirement etc. We have a system that promises a Ferrari but can only deliver a Fiat.

[gnolhsobners]

The pursuit of profits is beneficial to society. My employer pursues greater profits. The bigger the profit for the fiscal year, the bigger a bonus and raise I get.

[gnolhsobners]

They already account for increases when they calculate future income vs spending. Read again where they said you d need 8 T invested now growing at 3 percent to cover the future liabilities of SS. The unfunded liabilties are growing far faster than incomes have or will. They doubled from 00 to 05 for instance, who's income doubled in that time frame?

[gnolhsobners]

My entire point is how the United States find funding in the future to make good on every single promise it has made to me you and others. The system is unsustainable(proposed income vs spending), thus the only way to alleviate this is income increases, and/or expenditure decreases. There is not enough income to tax to make good, thus benefits will be cut to fill the gap, unless of course you believe in a fantasy of efficient government(single payer). Medicare is over 5x in the red as SS.