Austerity or Growth: A False Dilemma
Most austerity advocates want to exempt defense from spending cuts; most Keynesians want demand-stimulating investments. A defense-focused ‘investment’ budget might be an effective compromise for Capitol Hill.
A false dilemma has crept into the public discourse concerning the preferred path of escape from economic doldrums: Voters supposedly have an either/or choice between austerity and growth. For example, the voters of France recently elected Francois Hollande, thereby having chosen growth over austerity, according to the headlines, which in turn creates heightened economic tension in Europe because of Germany’s alleged preference for the austerity path.
But there’s one big problem: “Growth” versus “austerity” is a false dilemma between two oversimplified choices. Not only can the wrong kind of growth be bad for future generations, but the wrong kind of austerity can also be dangerous, even deadly.
It’s true that both paths share the same virtuous goal—deficit reduction—which is almost unanimously deemed necessary to improve any nation’s fiscal balance and creditworthiness. But that’s where the similarity ends, because “austerity” means cutting government spending to reduce the deficit, while “growth” means increasing government’s tax revenues to achieve that goal. It’s a false dilemma because growth and austerity are not mutually exclusive choices, and it’s oversimplified because there are good and bad ways to grow, as well as good and bad ways to achieve austerity.
Good and bad growth; good and bad cuts
The “growth” path can be good or bad, and the growth debate is lively. Growth in tax revenue through private-sector expansion is good; growth through ill-advised government expansion is bad. Growth of the workforce and of real incomes is good; growth in the scope of government or in tax rates is bad. Is more government stimulus needed to jump-start the private sector? Yes, say the liberals; no, say the conservatives. Are higher tax rates bad for the sluggish economy? Yes, say the conservatives; yes—with one exception—say the liberals. Will steady and predictable hands-off policies restore the higher-growth equilibrium? Yes, say the conservatives; don’t count on it, say the liberals. Is preventing a debt-deflation spiral a top priority? Yes, say the liberals; what the heck is that? say the conservatives. Could the economy now be stuck in an ugly, alternative equilibrium of low growth and high unemployment? Yes, say the liberals; no comment, say the conservatives. Would extra “temporary” fiscal stimulus programs turn out to be permanent, ratcheting up the government’s involvement in the economy? Yes, say the conservatives; no comment, say the liberals. In short, the growth debate is a lively one.