Wednesday, September 4, 2013

Much Needed Clarification about Austerity

From Frank Hollenbeck in his essay "The Three Types of Austerity." Contrasting the false dichotomy between more government spending and higher taxes versus less government spending and higher taxes, he notes that what we need is the austerity that will truly make way for propserity.
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.
The reason why the Austrian form is the only one that works is because it is the only one that actually fosters capital accumulation and the extension of the market division of labor, important engines of prosperity.

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