Austerity: A Virtue That Could Have Us Paying Twice European governments, including France, Germany and Great Britain, are looking at austerity measures to help battle the current financial crisis. The moves have sparked protests across the continent. While it might seem like common sense to tighten a country's belt in hard economic times, one expert warns that the U.S. shouldn't follow suit.
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Austerity: A Virtue That Could Have Us Paying Twice

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Austerity: A Virtue That Could Have Us Paying Twice

Austerity: A Virtue That Could Have Us Paying Twice

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GUY RAZ, Host:

Raising the retirement age in France is just one of the ways governments across Europe are trying to deal with growing deficits. In Britain this past week, Prime Minister David Cameron's Conservatives announced the largest government spending cuts since World War II. And it seems that lately, everyone is talking about one word.

(SOUNDBITE OF VIDEO "BREAKING DOWN AUSTERITY")

P: Austerity. It's big in Europe. It's getting big here.

RAZ: This is from a video clip posted by Mark Blyth. He's a political economist at Brown University.

(SOUNDBITE OF VIDEO "BREAKING DOWN AUSTERITY")

(SOUNDBITE OF MUSIC)

P: Those who made this mess won't, while those who already paid for it through the bailouts will pay again through austerity. This is why austerity is not common sense. It's a nonsense and a dangerous one at that.

RAZ: Mark Blyth, welcome to the program.

P: Nice to be here.

RAZ: Now, as you know, many European governments are cutting spending. The word is austerity, right? This has sort of become kind of like the hot economic term now, and this is what many people seem to want their governments to do, to stop spending, to cut deficits. Would it be a good idea here in the U.S.?

P: Now, the argument, for example as in the United Kingdom, which is leading the trend in austerity politics, is that we're in debt, and we have to worry about the credibility we have in financial markets. So preempting this, the British government decided to clear its balance sheet, basically, and that is reduce lots and lots of government spending.

N: You end up with a shrinkage of the overall economy for no net gain.

RAZ: So why do you think so many governments are doing this if, as you argue, it's a bad idea?

P: Because it has a wonderful ring of virtue about it: austerity, the pain after the party. We all went out and gave ourselves mortgages we couldn't afford; we're drowning in debt and consumption. So there is this ring of virtue to austerity, and it chides with common sense.

RAZ: So what you're saying is that if government engages in austerity measures, the public who paid for the bailouts are going to pay for austerity as well.

P: Absolutely. And this is why, as a foreigner who lived in the United States for a very long period of time, I actually have a great deal of sympathy with the Tea Party.

RAZ: Well, isn't it then really unfair to double-tax these people by having an asymmetric distribution in terms of who pays for the debt? Because if you cut government services, it's exactly the people who consume Medicare, Medicaid, teachers' salaries. It's these things which will be hurt.

RAZ: But many folks in the Tea Party are calling for austerity measures.

P: There are many contradictions in these arguments, and they're born of a sense of frustration out of what I think is the intuitive understanding people have that something deeply unfair is going on.

RAZ: So, as you know, we've had many economists on the program over the past few weeks and months, asking them, how can we tackle these twin problems of high unemployment, slow growth? Some have suggested stimulus. Some have suggested austerity. What do you say? What could the government do now?

P: If that was the case, interest rates should be much higher than they are. So what the government needs to do is to spend enough to maintain the rate of growth in gross domestic product so that things don't get any worse than they are now, allowing people who are in employment to pay back debt, to increase savings, to consolidate and clean up their balance sheets. Then private spending can continue.

RAZ: Mark Blyth, thank you so much.

P: Thank you very much.

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