Evan Soltas
Apr 17, 2013


Here's a graph you should be thinking about, given the recent conversation about austerity: government consumption in the United States and the euro area since 2000.

The data come from FRED and Eurostat respectively. The advantage of looking at consumption figures is that they exclude transfer payments, which are sort of irrelevant for this exercise. Transfer payments are highly cyclical, so they don't reliably indicate an increase in government expenditure, and they don't place a direct burden on economic resources. Eurostat appears not to have gross public investment figures at the euro-area level, so we're just looking at consumption, which is less than ideal.

Two more thoughts about fiscal austerity:

(1) It is real. There's a whole line of argument that charges governments with whining and says austerity is fake. Yeah, not true. We haven't seen austerity like this, at least in the U.S., since demobilization after the Korean War.

(2) The data don't support the thesis that Europe is suffering because it's doing more austerity than the U.S. It seems, at least from these data, comparable. The story I look to instead is the differing degrees of monetary-policy offset for fiscal austerity.