What austerity looks like, in three graphs

at 11:32 AM ET, 05/10/2012

This is what austerity looks like:

(Data: IMF)
What you’re seeing there is the unemployment rate and the structural budget deficit across all of Europe. “Structural budget deficit” is a technical term: It means the deficit that’s been created by what the government is doing rather than what the economy is doing. If policy were “expansionary” —which is the opposite of austere — the structural deficit would rise when unemployment rises, because the government would be spending more to support the economy. Instead, it’s falling even as unemployment rises.

Zoom into the country level and you can see this even more clearly. Here is unemployment in Spain, Italy, France, Greece, Portugal, and Ireland. As you can see, it’s skyrocketing:

(Data: IMF)

And here are the structural budget deficits for the same set of countries. As you can see, they’re falling:

(Data: IMF)
That’s austerity. It comes both from spending cuts and tax increases. And it can be expected to reduce economic growth. According to the IMF, which analyzed 173 episodes of austerity, cutting the deficit by 1 percent of GDP can be expected to reduce real incomes by 0.6 percent and raise unemployment by 0.5 percentage points.

All the numbers in this post, by the way, come from the International Monetary Fund’s latest data (pdf). Values for 2012 and 2013 are the Fund’s estimates.

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