What Real Austerity Is

By Mark Thornton

Austerity has been hotly debated as either an elixir or a poison for tough economic times. But what is austerity? Real austerity means that the government and its employees have less money at their disposal. For the economists at the International Monetary Fund, “austerity” may mean spending cuts, but it also means increasing taxes on the beleaguered public in order to, at all costs, repay the government’s corrupt 

creditors. Keynesian economists reject all forms of austerity. They promote the “borrow and spend” approach that is supposedly scientific and is gentle on the people: paycheck insurance for the unemployed, bailouts for failing businesses, and stimulus packages for everyone else.


Austrian School economists reject both the Keynesian stimulus approach and the IMF-style high-tax, pro-bankster “Austerian” approach. Although “Austrians” are often lumped in with “Austerians,” Austrian School economists support real austerity. This involves cutting government budgets, salaries, employee benefits, retirement benefits, and taxes. It also involves selling government assets and even repudiating government debt.


Despite all the hoopla in countries like Greece, there is no real austerity except in the countries of eastern Europe. For example, Latvia is Europe’s most austere country and also has its fastest growing economy. Estonia implemented an austerity policy that depended largely on cuts in government salaries. There simply is no austerity in most of western Europe or the U.S. As Professor Philipp Bagus explains, “the problem of Europe (and the United States) is not too much but too little austerity—or its complete absence.”


Most of Europe and the U.S. continue to have massive budget deficits and growing national debts relative
to GDP. The Keynesians’ magical multipliers have once again failed to materialize. Given that most of these
economies have not achieved growth from stimulus, they should give the idea of true austerity a fresh look.


Austerity for individuals, means living a highly restricted lifestyle. The best example is the monk who
lives on a subsistence diet, wears simple clothing, possesses a few basic pieces of furniture, and uses only necessary utensils. His days consist of long hours of work and prayer with no leisure activities and he may not even enjoy indoor heating and plumbing.


Austerity applied to whole countries, is not necessarily so harsh or ascetic. It simply means that the government has to live within its means.

Read the rest of the article from the Mises Institute's monthy publication call The Free Market