.. The failure of governments to promote robust economic recovery since the “Great Recession” will persist if a majority of the voting public is lured into thinking that voting against austerity is a vote for economic growth.
The key to understanding the falsehood of contrasting austerity budgets with promotion of economic growth is simple enough. First, whatever a government spends, it must first take from taxpayers and buyers of its bonds .. there is merely a one-to-one substitution in spending between the private sector and the government sector ..
Second, individuals are far better at managing their own funds or investments (out of savings) than government bureaucrats .. Austerity—that is, cutting government spending—particularly when revenue collection has decreased, is thus the rational path to reducing the inefficiency drag that most government spending has on an economy.
In a 1755 lecture Adam Smith explained that “Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism but peace, easy taxes, and a tolerable administration of justice: all the rest being brought about by the natural course of things.” .. We’ve come so far in this version of what Smith described as “folly and presumption,” or “conceit,” that politicians talk about “growing” the economy as if they were farmers planting crops.
Were government budgetary allocations the best way to promote economic prosperity, the economies of the defunct Soviet Union and Maoist China would be the models for the world.
It is time the Keynesians recognized their failures and spared humanity the prolonged agony of economic malfunctioning—anemic growth or contractions and continued high unemployment. Budgetary austerity is not an alternative to economic growth promotion but the rational path to it.