‘Austerity’ versus ‘Growth’ all in how you define things

Who
would not prefer “growth” to “austerity”? That is the false dichotomy
that insolvent Western governments, both here and abroad, are now
constructing. After all, everyone prefers growing things to starving
them. Yet in truth, there is no such clear-cut choice.

In other words, “austerity” is a lie. For all the talk of terrible
hardship and suffering, most of insolvent southern Europe still enjoys
entitlements undreamed of by prior generations. When the French lamented
that they were being squeezed to death by postponing retirement, they
meant to age 62 rather than 60 — a futile reform soon to be rescinded by
new French president François Hollande.

In the case of the United States, “austerity” does not mean
significant cuts in food stamps, reductions in unemployment eligibility,
or a raised retirement age, but simply not adding new entitlements to
those that recently were vastly expanded. It is a trademark of human
nature that people resent any reduction of a benefit, or even only a
moderate expansion of it, far more than not having it offered at all.
Talk today of cutting the Medicare Prescription Drug Benefit or No Child
Left Behind, and hysteria follows — without recognition that neither
program even existed before the presidency of the unpopular George W.
Bush.

But there is an even worse fraud in the new notion of “austerity”: It
now commonly refers only to the level of government spending versus
revenue, not to fundamental changes in the nature of regulated and
closed economies. “Austerity” — the pruning back of government support —
is supposed to lead to all sorts of social tensions and civic unrest.
By contrast, “growth” — even more government spending — restores calm.
But if labor markets are highly regulated and inflexible, if the tax
structure is byzantine and punishes entrepreneurs while promoting the
black market and cheating, and if government regulations crush new businesses, then the problem goes well beyond a question of expanding or cutting government benefits.

The crisis in Greece involves not just the question whether the
government must cut services and prune its labor force, but also the
fact that the entire Greek legal system and national culture punish
risk-taking and profit-making while rewarding timidity within a
landscape of envy and jealousy. What the Greek government chooses to
spend is important, but is rendered unimportant if endemic tax cheating
and the regulatory straitjacket are left unaddressed.

In the case of the United States, had Barack Obama reformed the tax
code to promote investment and entrepreneurialism, vastly stepped up oil
and gas leasing on public lands in lieu of subsidizing Solyndra-like
boondoggles, and trimmed back regulations, the economy would have grown
far faster, even despite Obama’s vast deficits. To take an example from
the private sector, the Harvard graduate with $200,000 in student loans and a sociology degree is in terrible shape; the Harvard graduate with the same level of debt and an engineering or business degree is not.

But if the bogeyman term “austerity” is misleading, even more
ridiculous is the fuzzy new idea of “growth” — the notion that by not
cutting back massive borrowing and high deficits, governments can create
new wealth and grow themselves into prosperity. Here in the United
States, we “grew” by adding $5 trillion in new borrowing — and got
annual GDP growth of less than 2 percent, 40 months of 8 percent–plus
unemployment, $4-a-gallon gas, and serial $1 trillion deficits. If
having near-zero interest rates,
borrowing more than all previous presidents combined, and putting 50
million people on food stamps is a policy of “growth,” what would be
needed to actually show results? Negative interest rates? New debt of
$10 trillion? More than 100 million on food stamps?

Does anyone think austere Texas is growing more slowly than
big-government California or New York? When southern-European countries
piled up trillions in debt over the last decade, did such public
“stimulus” and “growth” lead to far greater productivity, wealth, and
security than in “austere” Germany or Scandinavia?

So there is a disturbing counterfactual element of “never enough”
inherent in the “growth” argument. There is little empirical evidence
that borrowing creates national wealth, but it is still promoted on the
principle that past efforts to boost the economy by running up
gargantuan deficits always were too small. Thus Obama supposedly failed
to restore the economy in his first term only because he did not dare to
borrow $10 trillion rather than a mere $5 trillion — even though most
severe recessions by now would have given way to a natural cycle of
robust recoveries.

Finally, there is one more problem with the fake growth/austerity
juxtaposition. They are both simply reflections of much deeper
ideologies that drive politics. “Growth” is a euphemism for the politics
of hiring lots of government workers, preferably unionized, and
expanding the number of people dependent on government, who in turn owe
politicians their jobs and reciprocate at the polls in expectation of
even greater largesse. The costs of expanding the number of government
employees and offering them ever higher salaries, benefits, and
retirement packages are met not through increasing productivity, but
rather by increasing taxes on those who mostly make their livings under
very different conditions in the despised private sector.

“Growth,” then, is a sort of “gorge the beast” antithesis to the
Reaganite “starve the beast” model. Both ideologies seek to avoid
insolvency through a game of chicken — of front-loading the cost and
hoping the other guy will blink first when it comes to paying for it.
But where the Reagan model sought first to cut taxes, so as to cut
revenue, so as to force down the size of government and prune federal
dependency, the Obama paradigm seeks first to grow government, which
increases dependency and therefore requires more taxes — itself a good
thing because it means redistributing income from those who have no clue
that they have passed the point at which they no longer need to make
any more money.

If politicians talked not of “growth” versus “austerity” but of
“borrowing and spending” versus “fiscal discipline,” then there would be
very little public support for their disastrous agendas. Instead, we
are supposed to like the nurturers who “grow” and despise the “austere”
who hack away.

It’s that simple.