Bonddad states the obvious.
Austerity in an economic downturn has been tried before, and its results are quite reliable.
For instance, as I noted before, all of Europe was affected by the economic downturn caused by bankster criminal gang of parasitical finance capitalists in the US.
Most states cushioned the impact with stimulus spending (classic Keynesianism), the Baltics, which have adopted some of the most radical neoliberal policies on Earth lately as a reaction to their bad experience with Communism, instead opted for austerity. They were rewarded for this stupidity with economic depressions. Latvia was hit worst of all. The neoliberal head of the Latvian Central Bank announced his goal to reduce the wages of Latvians by fully 1/3. This is neoclassical economics in action. It calls itself austerity and fiscal responsibility, but its mechanism is just the same old class war.
This is also the agenda of the Republicans you dipshits just elected to Congress – austerity during downturns resulting in depressions and probably a desire to reduce Americans’ wages by a high % too. The Latvian government and the Republican Party are on the same wavelength. They are both pushing the same radical neoliberalism. By voting for them, you vote for austerity during a downtown, which will result in an economic depression. Is that what you want? If you want a Depression, then please vote Republican.
You’re also voting for mass wage reduction for US workers. Is that what you want? If you’re not a worker, if you’re a rentier or a business owner, wage reduction is the ticket. If you’re a worker and you want wage reduction, you ought to have your head examined.
Latvia now has 20% unemployment. The Republicans are pushing the same policies as the Latvians. By voting Republican, you vote for higher unemployment. Perhaps as a business owner, you don’t care about unemployment. But if you’re a worker, you must be nuts if you want to raise the unemployment with no upside in return.
Ireland engaged in austerity in order to keep investor confidence in the country so they could continue to borrow money. But all it did was make the economy, and the deficit even worse. Their deficit was 7% of GDP at the start of austerity, then after austerity it had ballooned to 14% of GDP. It failed even to reduce the deficit! The more they cut spending, the more the deficit exploded! This is one of the paradoxes of deficit reduction. In addition, the austerity caused an economic depression in Ireland.
The UK and Portugal have both admitted that the austerity measures that they are embarking on with cause economic downturns, and possibly recessions, in their countries. But they are going to go ahead and do it anyway.
Bonddad lays it out in a formula (italics mine):
Here is the GDP equation:consumer spending + investment + exports net of imports + government spending = GDP
So, if we lower government spending (which BTW has historically accounted for about 20% GDP for the last 30 years) we are lowering GDP by definition.
Bonddad makes an excellent point at the end:
There is a time to put the fiscal house back in order. When GDP growth is slow, unemployment is high, consumer spending is slow, the housing market is trying to recover and demand is soft, cutting spending is a really bad idea – as in probably the worst idea you can imagine.
I don’t necessarily have a problem with fiscal responsibility, and for some countries, sadly, it’s a necessity (3rd World debt crisis). But now is not the time to be doing this.