Austerity Buchzusammenfassung - das Wichtigste aus Austerity

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Zusammenfassung von Austerity

Name: Austerity
Rating: 3.9 (33 reviews)
Author: Alberto Alesina, Carlo Favero and Francesco Giavazzi

Alberto Alesina, Carlo Favero and Francesco Giavazzi

When It Works and When It Doesn't

3.9 (33 Bewertungen)

21 Min.

Kurz zusammengefasst

"Austerity" by Alberto Alesina, Carlo Favero, and Francesco Giavazzi examines the effects of austerity measures on an economy.
It argues that while they may have short-term costs, they can lead to long-term benefits such as economic growth and reduced public debt.

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Austerity
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What’s in it for me? Discover the numbers behind austerity policies.

Austerity is a controversial subject, and one that economists have been arguing about for a long time. Since the financial crisis of 2008, the issue has become even more urgent. Simply put, how do you reduce a government’s deficit without ruining the economy?

To find the answer, academics Alberto Alesina, Carlo Favero, and Francesco Giavazzi turned to data. They compiled a huge dataset that included austerity cases in 16 developed countries, from the 1980s to the 2010s, and worked out the effect those policies had.

The results were surprising. Austerity wasn’t always the political kiss of death it’s commonly assumed to be. In some cases, it actually worked quite well, and even led to governments being reelected.

However, the authors discovered that there are two different types of austerity, and that they’re not the same at all. In fact, as you’ll discover in these blinks, cutting government spending produces very different results than raising taxes.

In these blinks, you’ll learn

why politicians shouldn’t fear austerity measures;
where Keynes went wrong with his views on austerity; and
what happened in Greece after the financial crisis.

If it’s done correctly, austerity isn’t always bad news.

Since the financial crisis of 2008, everyone’s been talking about “austerity” – not just economists, but the general public too. But what exactly does it mean?

Simply put, austerity is a type of government policy that aims to reduce a budgetary deficit – that is, when government spending is more than the revenue it receives – so that the level of debt is stable. There are two ways governments can do this: raising taxes and cutting spending.

Although some economists and politicians view austerity as a sensible policy, it can be unpopular with the general public. And yet evidence shows that it is possible to be reelected after introducing controversial austerity measures. What’s more, austerity can even be good for the economy as a whole.

The key message here is: If it’s done correctly, austerity isn’t always bad news.

In an ideal world, there’d be no need for austerity. Governments would accumulate a surplus when the economy is booming, and run a deficit when it’s in recession – just like a seasonal worker might save heavily when money comes in and use the savings when work dries up. Overall, the surplus and the deficit would balance each other out, eliminating the need for drastic austerity measures.

But that’s not how it tends to play out. First of all, it’s common for governments to keep borrowing even during an economic boom. And secondly, an unexpected crisis – be it a pandemic or a war – often requires high levels of spending.

For countries like Italy and Greece, the Great Recession of 2008 was especially terrible because they had been building up far too much debt in the years leading up to the crisis. So, when the sudden shock of 2008 arrived, they were in two kinds of trouble at once.

In cases like that, the need for austerity is clear. And even though austerity measures can go wrong, as in the case of Greece, a correctly managed program of austerity can succeed in lowering the deficit without doing serious damage to the economy.

How is this possible? Well, through detailed analysis of a large dataset, the authors got closer to an answer. Despite the complexity of the question, they found that one point tends to hold true: spending cuts often lead to better outcomes than tax increases.

Previous work on austerity hasn’t factored in concerns like expectation, incentive, and confidence.

John Maynard Keynes was an influential 20th-century economist whose work is still considered relevant today.

According to him, cutting government spending has a multiplier effect on the economy – the initial cut creates an even greater negative impact on gross domestic product (also known as GDP). Meanwhile, raising taxes also causes a slight drop in GDP – because people have less disposable income – but the effect isn’t as pronounced.

A narrative approach to the data can shed new light on the effects of austerity.

Many previous attempts to analyze austerity ran into the same problem: it’s very hard to measure.

And not only because of the influence of expectation, incentive, and confidence that we discussed in the previous blink. It’s also hard to work out whether a change in a country’s finances was caused by austerity at all. For example, it’s possible that a country’s deficit may decrease simply because of increased growth.

Expenditure-based austerity can yield positive results.

As we’ve already discussed, there are two types of austerity: expenditure-based austerity focuses on reducing government spending while tax-based austerity increases government income. These fundamental differences have very different effects on the economy.

According to the authors, expenditure-based austerity usually has a far milder effect than tax hikes. In some cases, it can even lead to a growth in GDP.

Tax-based austerity often leads to deeper recessions.

When the authors constructed their average case, they also looked at the effect of tax-based austerity on GDP per capita. In this model, the initial effect of a tax increase was a notable drop in GDP, and that drop became even greater in later years.

According to the data analysis, tax-based austerity pushes economies into recession for several years. This is an especially striking result when compared to the mild effect of expenditure-based austerity.

Austerity played a key role after the 2008 financial crash – for better and for worse.

All the examples so far have been from the 1980s and 1990s. But nowadays, when people think about austerity, they think of more recent times. After all, the financial crisis of 2008 led to massive austerity programs in the years that followed.

Since then, the debate around austerity has been passionate, and often ideologically motivated. That’s why the authors offer their data analysis as a look at austerity focused on facts – even though these facts are complex and differ widely from one country to the next.

The politics of austerity is complex but it isn’t necessarily a political “kiss of death.”

If you’re looking for a surefire way to electoral success, raising taxes and cutting public spending probably isn’t the way to go. Understandably enough, voters like low taxes and well-funded services, which often means that they reward short-term policies without considering the long-term costs.

That’s the conventional wisdom, anyway. But, as the authors suggest, governments can do well at the polls even after austerity measures are introduced.

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Worum geht es in Austerity?

Austerity (2019) uses data analysis to look at one of the most controversial topics in economics today. An analysis of several countries’ austerity policies over the past several decades reveals that cutting spending can actually help the economy expand.

Wer Austerity lesen sollte

Economists keen to learn more about austerity
Politicians looking to brush up on their economics
Anyone who wants to understand the numbers behind government policy

Über den Autor

Alberto Alesina was the Nathaniel Ropes Professor of Political Economy at Harvard University. He wrote widely on austerity. Carlo Favero and Francesco Giavazzi are both academics at Bocconi University in Milan.

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