Veronique de Rugy on Austerity Facts

Vero's austerity chart

First, I wish we would stop being surprised by what’s happening in Europe right now. Second, I wish anti-austerity critics would start acknowledging that taxes have gone up too–in most cases more than the spending has been cut. third, I wish that we would stop assuming that gigantic “savage” cuts are the source of the EU’s problems. Some spending cuts have been implemented in a few countries. Also, if this data were adjusted for inflation (which I would prefer but the data isn’t available) it would possibly show a slight decrease and certainly a flatter line for all countries. However, the overwhelming take away from the European experience is that a majority of governments haven’t really implemented spending cuts, large or small, and some have even continued to grow.

via Show Me the ‘Savage’ Spending Cuts in Europe, Please – By Veronique de Rugy – The Corner – National Review Online.

I suspect the entire debate hinges on a difference in assumptions about the relevant spending baseline. If your theory prescribes significantly ramping up spending during recession, low or flat spending growth can look perversely “austere,” even if absolute spending as a % of GDP is very high.

UPDATE

Veronique sends an updated PPP-adjusted chart:

She adds (via email):

I am not denying that spending has been cuts in Greece, Italy and Spain. But I don’t agree that the spending cuts were savage or that’s all that’s going on in Europe. For instance these guys never talk about the impact of tax increases. Yet, Avent is willing to say that VAT props up inflation. That makes any cuts, even the smallest ones much more painful. I think there is a misplaced obsession with spending cuts and spending cuts alone being the source of all EUzone problems.

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10 thoughts on “Veronique de Rugy on Austerity Facts

  1. Of course you can ignore baseline and simply ask: All else equal, are countries that “spent less” relative to other countries doing better, worse, or the same?

    BTW, the dataset de Rugy apparently relies on defines itself as “includ[ing] the value of goods and services purchased or produced by general government and directly supplied to private households for consumption purposes.” (My emphasis.) Not sure what that means, but just thought I’d flag it, since at least on its face it seems to restrict the scope of expenditures included.

  2. I’m curious about what’s happening in different spending categories. There have been significant high-profile spending cuts in, for example, the UK, but the overall spend shows effectively no change.

    It seems that it must either be the case that cuts in some areas are balanced in others, or that the cuts are too small to show a meaningful result when compared to the overall spend.

  3. 1. The baseline point is important, especially in, say, Spain, which is dealing with something more like a Great Depression than a recession.

    2. You’d really want to subtract interest payments before judging the level of austerity.

    It seems that unemployment benefits and interest payments are each about 10% of Spain’s budget (9.2 & 10.5), with pensions another 37%.

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