European Auster-Yeti

There are people who will swear to this day that, despite all evidence to the contrary, Bigfoot exists and they have seen it.  Paul Krugman similarly is just sure he has seen European austerity.  The rest of us are left scratching our heads for the evidence -- he doesn't even have a blurry photo or footprint.  Just tales from a friend of a friend, who is not only sure there has been austerity, but that it caused an old lady to dry her cat in a microwave and that if you swim 20 minutes after eating you will get cramps.

The official Keynesian story is that the PIIGS of Europe (Portugal, Italy, Ireland, Greece and Spain) have been devastated by cutbacks in public spending. Austerity has made things worse rather than better – clear proof that Keynesian stimulus is the answer. Keynesians claim the lack of stimulus (of course paid for by someone else) has spawned costly recessions which threaten to spread.  In other words, watch out Germany and Scandinavia: If you don’t pony up, you’ll be next.

Erber finds fault with this Keynesian narrative. The official figures show that PIIGS governments embarked on massive spending sprees between 2000 and 2008. During this period, their combined general government expenditures rose from 775 billion Euros to 1.3 trillion – a 75 percent increase. Ireland had the largest percentage increase (130 percent), and Italy the smallest (40 percent). These spending binges gave public sector workers generous salaries and benefits, paid for bridges to nowhere, and financed a gold-plated transfer state. What the state gave has proven hard to take away as the riots in Southern Europe show.

Then in 2008, the financial crisis hit. No one wanted to lend to the insolvent PIIGS, and, according to the Keynesian narrative, the PIIGS were forced into extreme austerity by their miserly neighbors to the north. Instead of the stimulus they desperately needed, the PIIGS economies were wrecked by austerity.

Not so according to the official European statistics. Between the onset of the crisis in 2008 and 2011, PIIGS government spending increased by six percent from an already high plateau.  Eurostat’sprojections (which make the unlikely assumption that the PIIGS will honor the fiscal discipline promised their creditors) still show the PIIGS spending more in 2014 than at the end of their spending binge in 2008.

As  Erber wryly notes: “Austerity is everywhere but in the statistics.”


  1. MingoV:

    Paul Krugman spouts crap or deliberately lies. What's new?

  2. Daublin:

    Thank you.

    It is not just Krugman. I keep running into complaints about austerity in major governments, but the world's major governments now are extremely large. The myth needs to stop if there is to be any sensible discussion about economic policy.

    The U.S. budget for 2013 is higher, inflation-adjusted, than it was during World War II. That's not austere.

    More broadly, there should be some recognition about how bad the major governments are doing with the basic budgeting necessity of spending less than they receive in revenue. These aren't visionaries leading us into a brighter future. They are failing at their most basic responsibilities.

  3. mesaeconoguy:

    And now…the punchline:

    If we take away the gold-plated entitlement punch bowl, there will be riots, and Revolutionishness ™ !

    German Finance Minister Wolfgang Schaeuble

    warned on Tuesday that failure to win the battle against
    youth unemployment [caused by Keynesian policies] could tear Europe apart,
    while abandoning the continent's welfare model [causing the unemployment] in
    favour of tougher U.S. standards [which aren’t tougher] would cause

    Of course, there will be riots anyway, because the punch bowl isn’t big enough to serve those entitled Eurotrash Keynesians.

    It isn’t big enough to serve the Krugmantrash American Keynesians either. Coming soon to a US venue near you.

  4. sean2829:

    I think there is an aspect of this you are alluding to but not really addressing. During the good times, salaries and benefits of government employees rise to reflect the increase in revenues. I don't know what happened in Europe but clearly in places like California and Illinois salaries improved some and benefit packages improved dramatically. For reasons I don't understand, the income of retirees from the government is sacrosanct and promises made during employment can never be undone. So payroll costs have gone up alot, even in relatively prosperous locals like San Jose, who now spend between a fifth and a quarter of the operating budget on CalPERS and CalSTRS payments while the active police force and fire department see substantial cutbacks. Then look at the impact of the sequester. A 4% budget cut leads to a 10% reduction in operational capability by Federal employees (1 furlough day every 2 weeks) and cuts of 25% or more to people receiving grants or contracts from the federal government. Most government bureaucracies purpose when they start is to serve some public objective that would be approved by that public. However as these same bureaucracies age, their self preservation takes precedence over purported public objective and cuts are applied disproportionately to the mission so the administration can be maintained. I'm sure the same thing happens in Europe but I am not of the details of how their austerity programs has been implemented. However, I'd bet the cuts to public service vastly outstrip the cuts to administration.

  5. Matthew Slyfield:

    You have to understand that when progressive Keynesians like Krugman talk about austerity what they mean is that the spending increases have been paid for with tax increases instead of unicorn farts.

  6. obloodyhell:

    }}} The official Keynesian story

    He shoulda just stopped there. Keynesians are morons. The USA in the 70s, Japan in the 90s, the recent TARP fiasco, all have repeatedly shown that Keynesianism is hardly any better, if any better, than Marxism as a description of valid economic theory. No amount of band-aid patching "Neo-xxxx"s can be applied to save this meme. You have to be a complete moron to promote Keynes any more.

    "But Paul Krugman supports Keynes"?

    'Nuff said.

  7. obloodyhell:

    }}} I'd bet the cuts to public service vastly outstrip the cuts to administration

    More importantly, the cuts are always the severest to the most critical and visible services -- Police, Emergency, etc.
    Never to the "Office of Yak-Wool Knitting Promotion and Development"

    "You don't want to give us the money we're demanding? Eph You. With a large spiky thing."

  8. obloodyhell:

    }}} Revolutionishness ™

    I thought it was "Revolutionicity®" (and a registered trademark...) -- Or is this another movement entirely?

  9. slocum:

    To the extent that 'austerity' exists, it has been in the form of tax increases rather than spending cuts. But Krugman, of course, cannot and will not say THAT. He cannot possibly come out against tax increases.

  10. mesaeconoguy:


    And when you talk about destruction, don't you know that you can count me

  11. obloodyhell:

    Oooo, a Krugman loving idiot was about.

  12. obloodyhell:

    They say that. but do they really mean it? :oD