Last weekend I watched a video clip in which Veronique de Rugy explained that “economists” define austerity as a combination of spending cuts and tax increases that reduces a country’s budget deficit. This definition is interesting. The commonly understood definition by most people is probably a lot closer to the first sentence in the Wikipedia definition for austerity.
In economics, austerity refers to a policy of deficit-cutting by lowering spending often via a reduction in the amount of benefits and public services provided. Austerity policies are often used by governments to try to reduce their deficit spending and are sometimes coupled with increases in taxes to demonstrate long-term fiscal solvency to creditors.
The problem I have is the phrase, “sometimes coupled with tax increases”, in the second sentence. This definition implies that tax cuts are a minor part of an austerity program. Since Veronique is a senior research fellow at the Mercatus Center at George Mason University and Wikipedia agree that tax increases are part of the austerity definition I am puzzled why Wikipedia did not include references to support the tax increase part of their definition. This minor part of the definition seems to be playing a bigger than anticipated part in several “austerity” programs. This ambiguity was not lost on Veronique. In her National Review article, There’s Austerity and Then There’s Austerity, she said that “Austerity means different things to different people.” She went on to say that if a country’s goal is to reduce their debt then the successful plan most likely will consist “of spending cuts rather than a mix of spending cuts and tax increase”. She appears to be consenting to including tax increases as part of an “austerity” program as long as you recognize that the research says these programs typically do not work. In another article, Fiscal Austerity in Europe Doesn’t Mean Large Spending Cuts, she pointed out that European countries do not seem to have cut spending as part of their “austerity” programs. It is at this point I started wondering whether the European “austerity” programs would be more accurately described as “business as usual but with more taxes”. We know that the common man’s definition of austerity consists primarily of cutting spending. We also know that although economists recognize that some austerity plans in the past contained a balanced mix of spending cuts and tax increases but those plans typically did not work. So why does our government and media seem willing to stretch the definition of “austerity” to include these balanced mix programs when it is unlikely this inclusion will be successful at reducing the budget deficit or beneficial to the general population? At what point do we clean up our language and start calling programs that consist primarily of spending cuts as “austerity” programs and those programs that consist of a mix of spending cuts and tax increases as something else? In What Successful Fiscal Adjustments Look Like the “typical successful fiscal consolidation consisted of 85 percent spending cuts”. I propose that any “austerity” program that has less than 85 percent spending cuts be called something else. Maybe we should call the balanced approach like they are using in Europe, Krugman spending cuts. Heh, Heh.