The Wages of Sin (and Austerity)

Here is an interesting post by Dean Baker on his Beat the Press blog:

Folks in Greece are being taught Keynesian economics by people who don't believe in it. It seems that when you strangle your economy, budget deficits rise. Greece's shrinking economy is leading to larger deficits (less growth means lower taxes and more transfer payments for things like unemployment insurance) and a rise in its debt to GDP ratio (when GDP falls, the debt to GDP ratio rises).

The news is that the austerity being imposed by the EU and the IMF is making Greece's debt situation worse, not better, just as all of us Keynesian types predicted. While the Greek experience should be a warning against going down the austerity path in the United States, due to the incompetence of the U.S. media it will be taken as a further warning of the need to act on the budget deficit quickly.

This is sort of like pointing to the medical problems of a person suffering from anorexia as evidence of the urgent need to lose weight. That makes no sense, unless you are involved in the national debate over economic policy.

Isn't it obvious that if you are a debtor that if you shrink your economy (pursue "austerity") you cut down your revenue (tax income) while increasing your expenses (more benefits for the additional unemployed). It isn't rocket science. It should be obvious that "austerity" is the preferred policy response of puritanical moralists who think recessions are caused by some sin of laxness, over-indulgence, over-indebtedness, etc.