"Austerity" is just today's buzzword, but the point is this: No institution - and particularly one that is charged with the protection of the public interest - should run its affairs in such a way that its expenditures, year after year, exceed the revenues coming in.
You cannot compare the finances of a sovereign currency issuer to that of a household or individuals. In terms of balanced budgets, it's impossible for the federal government to do this for any extended period of time. It's only feasible if the private sector decides not to net save, and decides to purchase more real more goods and services from the foreign sector than it sells to them as exports.
National governments have the ability to create money, and thus spread or delay the pain of their fiscal irresponsibility, but the fact remains that it is irresponsible to SPEND more than you TAKE IN over the long term.
The monetary circuit doesn't operate like a recycling plant. There isn't a fixed quantity of $$$$ in a vault somewhere. Money creation is ex-nihilo under a fiat system, so all government spending is money creation. When we pay taxes, it's basically a way of unprinting money, so it's more of a mechanism to control inflation and regulate aggregate demand, than a way to fund federal expenditures.
It is possible to increase spending in the short term to STIMULATE the economy - build roads and bridges, that sort of thing. But the theory is that the effect of the injection of funny money into the economy stimulates private investment and spending, thus increasing tax revenues and compensating for the short term stimulus. Our Progressives have decided in the current situation that the short-term spending must be perpetual, which is economic insanity.
There isn’t some fixed amount of savings cemented in the economy. Savings is a byproduct of national income. When we have increasing national income, we have increasing levels of savings. If the federal government spends $$$$ to get economic activity going, and increases GDP and national income, savings will increase automatically.
In my opinion, from a macro standpoint, all spending and tax decisions by the federal government should be done in such a way that total net spending in the economy is good enough to produce the levels of real output where firms will employ any and all available labor.
Austerity is the term that is used of late to describe the effort by national governments to live within their revenues, and as indicated in this thread, Liberals claim that their is something "wrong" with austerity, because it inevitably results in many government teat-suckers being left out in the cold.
The situations in Europe and the U.S. are somewhat different because in Europe the countries have made a conscious decision to erect a social safety net that protects them from cradle to grave, and includes free education through university level, free healthcare, nursing homes, generous unemployment benefits and "welfare," and so on. But in Europe they also decided, at least initially, to set their tax rates high enough to pay for all of it. Their income taxes are much higher than in the U.S., and the reason why "gas" is $8/gallon is because of all the taxes that are tacked onto the price.
In the U.S., ironically, the social safety net is not only NOT mandated by public policy, it violates the U.S. Constitution, though you would never know that to hear a Democrat speak of it. We CANNOT have socialized medicine and so forth. And because we have never made this policy decision to have and PAY FOR a comprehensive social safety net, our taxes are insufficient to pay for those pieces of the social safety net that "progressives" have been able to force through the process. So, as George Will has often put it, we have a national consensus that we want to be protected by comprehensive government programs, and we also have a national consensus that we don't want to pay for it. Democrats either want (a) someone else to pay for it, or (b) to keep printing funny money to pay for it and not worry about the future*.
Thus, we have trillion dollar deficits, year after year - a number which is too large for any human to comprehend.
When the U.S. approaches a balanced budget, which happens occasionally, it has nothing to do with higher taxe rates, and everything to do with increased economic activity, which automatically increases taxable incomes, both individually and on commercial enterprises.
Austerity can't work in the US simply because of the reality of budget surpluses and/or "balanced budgets". We define a surplus as tax revenue that exceeds spending, which destroys net financial assets within the private sector. If these financial assets aren't replenished by revenues through running a trade surplus, the constant destruction of net financial assets within the private sector simply cannot continue. The end result is depression, recession, credit bubbles and going back to budget deficits. For the United States, with our trade deficit and large output gap, which manifests in the form of high unemployment and chronic underemployment, a policy of decreasing the deficit with the goal of a balanced budget and/or budget surpluses, is highly destructive and will further erode the capacity of the economy in the US.
It's fiscally irresponsible and insane to purse deficit reduction when we have such a large output gap and trade deficit, because such a course of action, from an macro standpoint, will destroy net financial assets within the private sector year after year as long such a destructive policy is pursued. If such a plan is pursued long enough, the removal net financial assets from the private sector will result in a severe deterioration of both labor and capital, which will severely cripple the productive capacity of the economy and the government's ability to maintain productive deficit spending that produce outputs of lasting social and civil value.
Lastly, the EU is in the position its in because of nutty neoliberal monetary policy being pursued by zee Germans and Brussles. The way out of their debacle is through a prudent fiscal policy. A 1.5-2.0 trillion Euro spending program for housing, infrastructure, education, medical research, R&D, transportation, etc. on the Continent should suffice to get aggregate demand going in a sufficient fashion. We cannot compare the US - or any other sovereign currency issuer - to EU countries since they are revenue constrained, similar to a state or local municipality. This is inherently the problem of an economic union without a political union.
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*Isn't it ironic that the Dems are in a panic about global "climate change" which is uncertain and speculative, and couldn't care less about trillion dollar deficits, the disastrous effects of which are clear and very well known?[/QUOTE]
