by Frank Hollenbeck @ mises.org
"Reading the financial press, one gets the impression there are only two sides to the austerity debate: pro-austerity and anti-austerity. In reality, we have three forms of austerity. There is the Keynesian-Krugman-Robert Reich form which promotes more government spending and higher taxes. There is the Angela Merkel form of less government spending and higher taxes, and there is the Austrian form of less spending and lower taxes. Of the three forms of austerity, only the third increases the size of the private sector relative to the public sector, frees up resources for private investment, and has actual evidence of success in boosting growth.
"Let’s take a closer look at the Merkel form of austerity being implemented in Europe in which governments “plan” to cut their spending and raise tax revenues. Of course, “planned” cuts are not actual cuts. Four years after the crash of 2008, the UK government had only implemented 6 percent of planned cuts in spending and only 12 percent of planned cuts in benefits. In almost all European countries, government spending is higher today than it was in 2008. A new study by Constantin Gurdgiev of Trinity College in Dublin examined government spending as a percentage of GDP in 2012 compared with the average level of pre-recession spending (2003–2007). Only Germany, Malta, and Sweden had actually cut spending…
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Taxes are an extension of government power and control over its citizenry.. Resources, in this case capital, is taken by government from the productive forces in the economy and are wasted in unproductive spending which creates no meaningful wealth accruing to the country.. Increasing tax rates or establishing new taxes, like VAT, without a similar quantitative reduction in government spending chokes off and creates scarcity of capital for the private sector.. There are no “Trickle Down” economic benefits here as in most cases the economy sinks into recession flirting with depression..
In a small country like the Bahamas, when investment and capital spending in the private sector are significantly cut back, it only results in additional unemployment and limited real economic growth.. Governments, with additional revenues in the treasury, NEVER use these additional revenues to pay down the bloated public debt that is destroying the country’s underlying economy.. This has never happened in the Bahamas over the past forty years and will not happen now or in the near future.. What is outright criminal that governments will continue to deficit spend the country into financial bankruptcy which will impact the pocketbooks of every citizen both rich and poor.. Trying times require meaningful answers but none are forthcoming as we are being lead down the road to economic serfdom by politicians that have no idea of what they are doing….