Veronique de Rugy argues using the chart above that there have been no spending cuts in Europe, and Tyler Cowen popularised the argument while conflating cuts with austerity. I covered the concerns in depth yesterday, but lets look at a brief summation of the problems with it:
- Presenting such a chart using non-adjusted numbers is borderline dishonest. Flatlining spending in the UK, for instance, is a 3.5 per cent cut in real terms if there is 3.5 per cent inflation.
- The massive increase in mandatory spending (which was entirely expected), on everything from servicing balooning debt to unemployment benefit, meant that discretionary spending – departmental budgets – had to be slashed if nominal expenditure were to stay flat. In the UK, the 2010 spending review called for budgets to be cut by over a quarter.
- Austerity doesn't just come through spending cuts. It also is enacted through tax increases, like the raising of VAT from 17.5 per cent to 20 per cent in the UK. This is because the rationale for austerity is to get fiscal fundamentals under control, to lower the deficit and eventually pay down the debt, which can be done through spending less money or receiving more money. As Ezra Klein notes, part of this is due to a disconnect between American and European politics of austerity. The former desire it because it shrinks the state, not because it pays down debt. As a result, tax rises seem incompatible with austerity, while Europeans argue they are indespensible.
- It's all nonsense anyway. Ryan Avent shows that the spending cuts are there in spades.
Even so, expect the argument to recur again and again. It's not like we haven't heard it before. Over a year ago, Toby Young was writing:
Cuts? What cuts?