Cowen Considers Austerity

Tyler Cowen muses about what people, economists particularly mean when they say “austerity”:

I could imagine a definition something like this: “the net effect of all government fiscal policies on ngdp, relative to the baseline of a stabilized path for expected ngdp growth.” Or should it read: “…relative to what will happen to ngdp growth in the absence of budgetary changes”? I wonder if some Keynesians have in mind the baseline of “the expansionary policies which I think would be appropriate,” in which case doing less than the Keynesian optimum is always a form of austerity. Angus notes correctly that clear definitions of austerity are hard to come by.

In Bucharest I cannot alas consult my library for further definitions.

In any case, austerity is a misleading and often misunderstood word. It is better if we describe policies more concretely, and in fact that is not hard to do. Furthermore, insisting on a clearer accounting should not be equated with “austerity denial.”

I would restate Tyler’s proposed definition for Keynesians somewhat along the lines of “austerity is any level of government spending below a level that produces full employment” which I think a) is what they have in mind and b) makes altogether too many assumptions.