Economist: 'Balanced Approach' Deficit Reduction Historically Fails

Check out this interview courtesy of ReasonTV to inform yourself on Europe’s current “austerity” debate and what it could mean for America. Just how wise is the wisdom of liberal Paul Krugman?

From Nobel laureate Paul Krugman to the free-market-friendly Economist magazine to former Treasury Secretary Lawrence Summers, all sorts of experts are charging that financial austerity measures are killing the great economies of Europe.

“Austerity Is So Wrong!” reads the headline of a Krugman piece at The Daily Beast that argues against cutting government spending during weak economic times. But the critics of austerity have got it all wrong, says Mercatus Center economist and Reason columnist Veronique de Rugy.

Reason’s Nick Gillespie talks Europe and austerity, which can offer valuable lessons for Americans as we engage in the economic debate sure to be had as part of the 2012 election. Significant research demonstrates that so-called austerity measures that worked through the years are ones that focused on government spending cuts, without leaning on tax increases to make up the balance between that and GDP.

Packages of spending cuts often lead to economic growth, whereas those including significant tax increases do not, which parts of Europe are learning the hard way today. Government spending is also one of the elements that proves less likely to create economic expansion.

Is Germany doing better than America? It’s hard to argue with a 6.2% unemployment rate brought about through serious structural reform, including labor markets. Also, by reducing incentives to stay unemployed and reducing the size of, and compensation for, the government workforce, Germany seems to be faring far better than much of Europe–which responded to economic downturns with higher taxes.

America is headed for economic calamity if we don’t embrace serious reform and start putting things right. With their respective core constituencies and politics, are Democrats or Republicans, if pressured by an empowered base, in a better position to deliver the long-term changes most on the right believe we need? It’s not a trick question. Watch the short video to see for yourself and learn more.