Europe's Austerity Pipe Dreams

This article reviews the efforts of governments in Europe to implement programs that bring spending in line with tax revenues. These are often called austerity programs because the focus is typically on reductions in government spending. The evidence is not very encouraging for the advocates of austerity. Most of the efforts have failed because reductions in government spending produced slower growth and falling tax revenues. Expansionary austerity has not worked in most places where it has been attempted. The fascination that politicians have today with expansionary austerity is remarkable in face of the failure of such programs in the past. It may reflect moral preferences that the profligate should be punished more than anything else.