There is an element of the bizarre in the backlash against “austerity” in Socialist-led countries of Europe and among mainstream (read: Keynesian) economists – because true austerity hasn’t even remotely been tried in most European countries. Most have taken what is known as a “balanced” approach – big words and little action on cutting expenditures, and some all-too-real tax increases through the back door. Not surprisingly, this hasn’t worked anywhere, while those few countries that took a dose of pain, such as Estonia, are doing remarkably well. Generally, the problem with austerity is that it is not a short-term panacea – the painful cure needs time to work its magic on the ailing patient who may in fact feel worse for a while before getting better.
Now Spain, where socialist as well as nominally conservative administrations have produced a vast welfare state, has produced a regional governor with the audacity of pushing through fairly draconian real cuts. Maria Dolores de Cospedal talks the talk, too, with no-nonsense language that could come straight out of Calvin Coolidge: “We cannot be drowning in debt if we want growth,” she says. “I, too, want to invest, but right now, with this deficit we inherited, it’s impossible.” Like Coolidge (who was in the more enviable situation of presiding over a booming rather than a stagnating economy), she correctly identifies crippling debt and government overspending as the worst enemies of growth. Not surprisingly, Ms. de Cospedal is being pilloried by the Left. If she sticks to her guns, there may be hope among the pain for Spain.