The most frugal countries were: the Czech Republic, Hungary, Israel, Poland, Sweden, and Switzerland. Their per capita government spending actually shrank by anywhere from 0.2 to 6.3 percent. The result? Per capita GDP grew by an average of 7 percent over the three-year period. These countries also saw the share of their working-age populations with jobs grow.
Contrast the performance of these frugal countries to that of the U.S., where the percentage of the working-age population employed has fallen well below the 2007 level. During this period, per capita GDP growth in the United States was only a quarter of that of the six most frugal countries.
The second approach is to see how much larger deficits are than they would have been if these economies had normal economic growth. I will follow others and assume that in normal times, government revenue would have grown by 2 percent a year.
So what results do we get for developed countries? Austerity works, Keynesian stimulus does not. And, again, bigger stimuluses have a detrimental effect on employment.
“Austerity” may be a bad word to some politicians, but the countries that followed Keynesian policies have assumed a triad of woes: poor GDP growth, poor job growth, and massive debt. Obama needs to stop using economic growth as an excuse for not cutting government spending.
John Lott is a former chief economist at the United States Sentencing Commission and the author of “At the Brink” (Regnery) to be released next week.