Austerity doesn’t work. Except for when it does. Do we have a choice anyway?

In the wake of the French elections, and as Greece continues to go off the rails, there is a broad call in Europe for increased spending and for running deficits versus getting economic houses in order.

Cleaning up the mess is just too painful it seems. As such some have decided that the credit card (the one paid for by future generations) needs to be tapped again. After that who knows? I guess they’ll just run it up again, and then again, until the end of time.

Today’s Keynesians argue that the answer to our economic disaster is more spending, always more spending. What ever happened to “priming the pump”? (Not that I buy this argument.) Wasn’t government spending supposed to spark the engine so it could then turn over by itself? In theory, once the engine turned over on its own there was a way to rein in expenditures. There was an end. But this is not what we see now.

There is no end for today’s Keynesians. They have no answer to the ultimate economic problem. How does the economy regain some sort of sustainability ultimately? All I hear is crickets from Krugman and company on the big question.

Sadly, the economic “engine” is broken. It has multiple cracked seals. The block has been damaged. The only way to keep the engine going at all is with direct infusions of fiat fuel, which becomes less and less effective as the engine becomes less and less efficient.

The question is, do we rebuild the engine now (a much simpler engine), with the costs that will entail, or do we try to push it further down the highway as the Keynesians say we must? If we do the latter, until no amount of fuel will move us, we will one day find ourselves stranded with nothing but horrific political choices. Options are limited on the side of the highway and the cost of a tow is high.

In the attached article Robert Barro at the Wall Street Journal says that we would be wise to look at Sweden and Germany, two relatively low deficit countries which are also the best economies in Europe, versus the countries which have spent with abandon. Guess what we find?

Click here for the piece.