Michael Tanner | Europe: Tax Hikes Now and Reform Later Don’t Work

In the wake of French and Greek elections last weekend, the backlash against European austerity is now in full swing. Meanwhile, in the U.S., advocates of big government are insisting that the European debacle proves we must reverse our efforts to reduce debt and deficits. After all, Paul Krugman writes in the New York Times, “claims that slashing government spending would somehow encourage consumers and businesses to spend more have been overwhelmingly refuted by the experience of the past two years.”

Given Europe’s continued slow growth, Professor Krugman might have an argument to make — if there actually had been any austerity in Europe over the last two years.

It is true that Europe has not been engaged in the same sort of massive Keynesian spending that characterized, say, the Obama stimulus package. Well, that’s not universally true. Portugal did try its version of stimulus spending: It pumped more than €2.2 billion into the Portugese economy in 2009, 1.25 percent of its GDP. The result was that economic growth stayed negative, while unemployment rose by roughly 3 million Portuguese workers. Recently, that country’s finance minister told the New York Times that “it didn’t turn things around, and may have made things worse.”



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