Ideas@TheCentre
Fiscal discipline isn’t austerity but good government
It was inevitable, given the modern trend of sloganism, that those opposed to small government and fiscal responsibility would come up with a catchphrase. By arguing for a ‘focus on growth’ and demonising ‘austerity,’ Keynesian economists and big government socialists are seeking to continue their reckless government-funded spending spree.
The United States is a perfect example of the failure of this thinking. In the last 50 years, it averaged 6.72% nominal growth, yet ran 45 deficits totalling more than $10 trillion. In that time, it recorded 38 years with 5% or greater nominal economic growth. In 34 of those years, it ran a federal deficit.
Given that growth, it is absurd that the total US public debt is 100% of GDP and climbing.
The latest concern there is the ‘fiscal cliff,’ a series of automatic spending cuts and tax increases due in early 2013. Amazingly, even with this contraction, the US budget will still be in deficit by more than half a trillion dollars. Don’t bank on the fiscal cliff, though; it’s a safe bet that the United States will put off making hard decisions on budget cuts yet again.
It is completely unsurprising that the total US public debt is 100% of GDP and climbing.
Acknowledging that governments cannot spend more than they earn indefinitely, and cutting spending before your nation is crippled by debt, is not ‘dirty’ austerity but good government.
The end game of large deficits and crippling debt is the situation in Europe. Even there, dissent to spending controls is growing – the call now is to ‘focus on growth.’ How does a country that can’t pay its bills or borrow any more money run ‘growth’-focused budgets (code for large deficits)?
Already we are seeing rumblings in Australia against ‘austerity’ as states like Queensland try to balance their bloated budgets. At the same time, governments are making unfunded promises of massive spending in the future. This is a worrying trend.
Believers in small government need to reject sloganistic arguments against fiscal discipline. The alternative is the lost decades in Japan, the chaos of Europe, or the looming problems in the United States.
Simon Cowan is a Research Fellow at The Centre for Independent Studies.
