It’s been a tough week for proponents of austerity economics—the misguided notion that government spending cuts and debt reduction magically produce economic growth. First, a team of respected mainstream economists completely discredited one of the foundational studies supporting the claim that excessive public debt holds back economic growth. Then, the International Monetary Fund—formerly a bastion of austerity economics—warned the United States that its budget cuts (including sequestration) had gone too far and would likely damage the nation’s economic growth.
Essentially, these developments repudiate the idea that high levels of public debt hurt economic growth along with the fantasy that cutting government spending help economic growth. Altogether, it’s been a bad week for austerity, as we can see below the fold….