A Paper By A Harvard Economist Influenced US Fiscal Policy

This article suggests that US fiscal policy has been influenced by a paper written by a Harvard economist.  The paper suggested that the "right kind of austerity" could be expansionary.  Austerity measures that included 85% in spending cuts and a 15% increase in tax revenues would reduce budget deficits and expand the economy.  The economist argued that the success of austerity in Europe, which used the right mix of austerity,  supported that prediction in a lecture that he made at the conservative Mercatus Center in 2010.  The Tea Partier's elected to the House adopted this policy and current US budget policy in the Obama administration has adhered to the recommended mix in spending cuts and tax increases.

The following graph shows how this policy has worked in Europe.  There is a very strong correlation between the degree of fiscal austerity and debt to GDP ratios.  Austerity increased the debt to GDP ratio the most in countries that imposed the most austerity.  We are still waiting for economic expansion.