Austerity is Austerity and It's Failed in the UK

Moneybox
A blog about business and economics.
Oct. 25 2012 10:03 AM

Austerity is Austerity and It's Failed in the UK

The failure of austerity policies in the United Kingdom is a bit of an embarassment for proponents of austerity in the United States, so austerians like Veronique de Rugy have beat a tactical retreat toward arguing that the problem in Britain is too many tax hikes.

And I agree—those tax hikes were misguided because austerity was misguided and so a fortiori tax-side austerity was also misguided.

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But as a simple matter of arguing honestly and clearly, if your policy prescription is "deficit reduction but without any tax increases" then deficit reduction isn't actually your policy prescription at all. The fact that conservative politicians, policy entrepreneurs, and economists favor low tax rates and low revenue levels is well-known and in fact the exact opposite of conservative thinking about how to respond to a special crisis situation.

The question on the table was whether deep recessions have some special properties that make large budget deficits less problematic than usual (the Keynesian posture) or whether high debt:GDP ratios have some special properties that make large budget deficits more problematic than usual (the expansionary austerity posture). Insofar as the line is that tax increases harm the economy, that's a huge blow against the theory of expansionary austerity while perfectly compatible with the Keynesian line.

To further complicate this, I would say that in many circumstances the distinction between taxes and spending is not that well-defined. If cutting spending in a recession is doubleplus good while raising taxes in a recession is doubleplus bad, where does that leave a reduction in the EITC or the Child Tax Credit or something like the Bush-Pelosi "tax refund" stimulus? Both American political debates and IMF reports seem to me to put undue metaphysical weight on things like the aggregate revenue share of GDP.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.

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