Austerity Won’t Hurt the US

Posted: Feb 15, 2012 12:01 AM

Headlines all over are cropping up about how the Greek economy is shrinking by leaps and bounds. Portugal’s economy is contracting. Spain, contracting. It’s all because of those dirty austerity programs they have enacted to get their budgets back into control.

Ironically, Ireland enacted austerity programs too, yet their economy only contracted by 1.9% in the third quarter.

What’s the difference? Taxes.

The other countries enacted large tax increases on the wealthy along with government spending cuts. Sounds like Obama’s recent budget! The Irish went against the grain, and cut spending but held the line on most taxes. The Irish raised their VAT tax, but held firm against corporate tax increases.

On this side of the pond, Keynesian economists vehemently wail that any cut in government spending by the US will be fatal to our domestic economy. They are wrong.

The US government spends a lot of money but the primary drivers of the US economy are consumers and business. The US has an incredibly dynamic private sector. If we slashed federal spending, and combined it with tax cuts similar to the Reagan era the US economy would grow, not sputter.

In countries like Greece and Portugal, the government borrowed money from the taxpayers and transferred that wealth back to them. They had little or no private industry that drove their economies. Instead, they were big Ponzi schemes.

Keynesians will try and make the case that a cut in government spending will automatically slow GDP growth in the US. The Irish example will tell you they are wrong. Ireland’s on a much firmer footing than the other PIIGS in Europe. It’s trying to grow its private sector. The headwinds for them are fierce, because the European economy is sputtering. Absent that macro trend, the Irish would be in pretty good shape.

Obama’s recent budget didn’t cut spending, left us with trillions in deficits, and increased taxes on everyone. In addition, the increased tax proposals are disincentives to invest. Why is he taxing dividends so heavily? Why huge raises in the capital gains rate? He continues to talk a good game about starting and supporting companies, but his actions and policies belie a person out of touch with the way a business operates and a champion of a centrally planned statist society.

He needs to go.

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