Austerity…

… is more than spending cuts. Contra Alex here discussing the spending of the US and UK state.

Government spending puts money and demand into people’s pockets; tax takes demand out. With regard to spending versus taxes, Adam Posen, for it is he, estimated that the US fiscal stance has contributed about 3 percent mroe to GDP growth compared to the UK’s fiscal stance. Posen’s techniques and figures are entirely uncontroversial.

This is in large part because the coalition decided a large VAT increase would be the best way to close the deficit despite lots of evidence on how damaging tax increases were during downturns.

Government may continue to buy boondoggles for people, if that’s how you want to look at it, but the Government has acted in an austere manner from a macroeconomic perspective.

Filed under: Economics, Foreign Affairs, Adam, Adam Posen, Alex Massie, Spending, Taxes