Be of Good Cheer: the Keynesian Welfare State Is Doomed
The Case for Austerity
by Gary North
The Keynesians and declared anti-Keynesians have joined hands in order to promote an intensely Keynesian error: European fiscal austerity as a negative factor. One contributor in Forbes refers to austerity as a death spiral.
The word “austerity,” beginning with the Greek government’s debt crisis two years ago, has been used by the financial media in one sense, and only one sense: reductions in spending by national governments. The word is not used with respect to the economy as a whole.
More than this: the word has been used to explain the contracting economies of Europe. The reductions in government spending are said to have caused the contracting economies. This explanation is based on textbook Keynesianism.
Keynesians call for increased government spending. This is the heart of Keynesianism. Keynesianism rests on a mantra: “Government spending overcomes recessions.” All else is peripheral: monetary inflation, graduated taxation, and free trade. These peripheral issues will always be sacrificed to the supreme economic premise: “Government spending overcomes recessions.”
This is where every analysis of Keynesianism should begin. Any economic doctrine, any economic policy, any proposed solution to the present crisis should be assessed in terms of the mantra. Anything that does not begin and end with the mantra is not Keynesianism. Anything that does, is.
It is a mark of the supreme triumph of any ideology when the self-professed critics of the ideology adopt both its conclusions and its rhetoric, and do so unknowingly. This means that the promoters of the ideology have set the terms of public discourse. It is very difficult to replace an ideology or worldview, once its promoters have established the terms of discourse.
It can be done, of course. But to do this, the promoters of a rival outlook must expose both the errors of the existing system and the implicit agreement of its supposed critics. This wins no friends among the hapless troops who think they are scoring significant victories by arguing against peripheral aspects of the enemy ideology, while accepting its central presuppositions and main policy prescriptions lock, stock, and barrel. They have been taken in hook, line, and sinker.