The Austerity Curve…

Even for the Left this is moronic

Might it then be the case that something like a Laffer Curve exists for austerity? That is to say that cutting government spending up to a certain point leads to lower deficits but beyond a certain point, the impact of lower growth and higher unemployment means that deficits get worse as the government cuts more?

Like the Laffer Curve it suggests that there is a point at which cutting government spending becomes self-defeating, it simply lowers growth, depresses tax revenues and pushes up social security spending by more than the government is cutting.

I’ll just make a couple of points — even though you could write a tome on how stupid this idea is.

The reason the Laffer Curve is regarded as a reasonable yard stick for setting taxes is that, at the very least, it’s start and end points are basically sound. If the tax rate is set to 0% you will raise no taxes. And if the tax rate is set to 100% you will raise no taxes.

You can argue about everything between 1% and 99% but the start and end points can’t really be argued. Even if you could find the one or two idiots who would work and hand over all their earnings to the state…

The problem with the ‘Austerity Curve’ is that not even the start point is sound. A Higher Deficit doesn’t necessarilly mean No Austerity. A high deficit will lead to high debts. High debts to higher borrowing costs and potentially default. And default equals catastrophic ‘austerity’.

I could go on, but I think it is clear that the Austeruty Curve is one of the most laughable economic theories ever imagined.

  6 comments for “The Austerity Curve…

  1. Andrew
    Jan 24, 2012 at 9:56 pm

    These types of theories and the lengths to which people go to try and justify their beliefs always fascinate me.

    Because without these people I might well be fooled into thinking that cutting any deficit, and debt, is as easy as spending less than you earn!

    Silly me.

    Now I know that if they keep digging, but slow down ever so slightly, they’ll soon be out of that hole.

  2. Jan 25, 2012 at 1:02 pm

    At a 100% tax rate you can easily earn tax revenues, a little forward planning is all that is required.

    As your tax burden crosses 50%, ensure you put a little aside for a carefully planned stockpiling program for guns, ammunition, tazers, batons and other pain inflicting devices. Then, when the tax threshold is sufficiently high that selfish deserters decline to work for the common good, tazer them until they produce something. Since you also have the guns, and can shoot them dead, they have little option but to comply. They will produce enough for themselves to eat, and a little more to keep you fed when you steal it from them. Civilisation as we know it will be impossible, but at least you can practice your ideology without those dammned bankers revoking your line of credit.

  3. Paul Marks
    Jan 25, 2012 at 4:10 pm

    The establishment left reject “theoretical” works (such as Ludwig Von Mises’ “Human Action) and demand “empirical evidence”.

    Very well – here is some.

    After World War II the Republican “Do Nothing” Congress cut American government spending by more than half – the Federal Government (by 1947 – 1948) was only about 15% or so of GDP (today Federal government spending is about 30% of GDP).

    That is way below the level on the above graph – and yet the economy BOOMED.

    “But that was after a war”.


    In 1921 Warren Harding’s Administation inherited a peacetime bust.

    And they cut government spending by 25%. Down to to a tiny size (a smaller government, as a percentage of the economy, than that of any major nation on Earth).

    Again the economy BOOMED.

  4. Paul Marks
    Feb 7, 2012 at 7:51 pm

    The left just do not “get it”.

    Some departments of govenrment in some countries are indeed facing cuts in spending – but TOTAL government spending is NOT being cut.

    So when they say “such and such a country is in trouble because of the reduction of government spending” they miss the rather important fact that TOTAL government spending in that country (including bank bailouts and so on) is NOT being cut.

    Also governments (and bankers) are quite demented in the way they talk.

    For example, I recently heard a banker say it was O.K. for the government to spend yet more money on financing IMF bailouts because “this does not add to the deficit”.

    What he meant was “this is kept off the books”.

    They really are that mad – to them spending money is not spending money, if you do not write it down.

    It is like dealing with people who think that magic is real – that what is important is what they write in accounts (on computers these days) not what is ACTUALLY HAPPENING IN PHYSICAL REALITY.

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