Good and bad austerity

European Central Bank President Mario Draghi in an interview with the Wall Street Journal pointed out the difference between “good and bad austerity”.

“In the European context tax rates are high and government expenditure is focused on current expenditure. A “good” consolidation is one where taxes are lower and the lower government expenditure is on infrastructure and other investments.”

When it comes to bad austerity?

“The bad consolidation is actually the easier one to get, because one could produce good numbers by raising taxes and cutting capital expenditure, which is much easier to do than cutting current expenditure. That’s the easy way in a sense, but it’s not a good way. It depresses potential growth.”

This might explain the painful reality that the European social bureaucracies are now facing. If the country gets poorer and poorer trying to maintain unsustainable social/welfare/entitlement/empowerment (call it what you wish) programmes, how will that help the poor and the vulnerable? Who benefits when both the prince and the pauper end up broke? Again we see how the zero-sum/scarcity mentality ends up hurting the very people it was supposed to help. Wealth cannot be created by merely transferring (or “redistributing”) it Robinhood style.

The question is not if but how to help? Do we help primarily through maintaining high taxes to fund these types of programs or do we help by creating an environment that can lead to potential economic growth in the long run? I leave those questions to the more qualified and informed people.

“The attempt to rescue the citizen from the burdens of responsibility”, writes Yuval Levin, “has undermined the family, self-reliance and self-government.”

The catch 22 is that this system creates a dependency (perhaps deliberate to a certain extent?) that stifles genuine human flourishing. It spawns an entire class of people who expect that their basic needs (and some wants) are to be provided for by the government. Nowadays

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