by Mitch Kokai
Senior Political Analyst, John Locke Foundation
Today pundits and protesters moan about fiscal “austerity” in nations like Greece. But if austerity means cuts in government, there hasn’t been much of it.
Sure, Greece cut spending, but only by 3 percent. One in four Greek workers still works for government (vs. one in seven in the U.S.). Greek politicians run government “businesses” that employ politicians’ cronies. In other words, Greece has barely begun what I would call austerity.
Paul Krugman deceitfully trashes real cuts and writes that he wants to see “some example, somewhere, of austerity policies that succeeded.”
But there are plenty. The Cato Institute’s Chris Edwards and Dan Mitchell discussed some at FreedomFest, a giant gathering of people who care about free markets held last week in Las Vegas. Mitchell points out that Ireland, New Zealand, Sweden, Canada and the Netherlands cut government spending and were quicker to recover from economic problems.
In the mid-90s, Canada was going broke, so the government cut its budget by about 10 percent. The growth that followed allowed Canada to cut its debt dramatically — from about 68 percent of GDP to 28 percent. During that same decade, unemployment shrank. Canada’s economy grew faster than that of every other G7 nation. Good things happened not because government spent more, but because it spent less.
The U.S. contains its own version of the Greek debt crisis in the form of Puerto Rico.
A recent island governor tried to cut Puerto Rico’s bloated government. Luiz Fortuno fired thousands of workers and made it easier to open a business. The economy improved. But firing workers isn’t popular. Fortuno lost the next election and his successor increased spending and raised taxes. Of course that didn’t work. Now Puerto Rico can’t pay its $70 billion debt.
“Are there any success stories based on tax hikes or bigger government? The answer is no,” warns Mitchell.