It’s certainly true that the economies of Greece, Ireland, and Portugal—the three countries committed to austerity programs as conditions for European and International Monetary Fund bailouts—have shrunk over the past year. The unemployment rate is above 10 percent in all three. Meanwhile, the U.K. economy is growing sluggishly. But to infer from this that the United States can postpone serious attempts at fiscal stabilization would be completely wrong—and deeply dangerous.
Here. Two comments. GDP measurements count government spending as increasing GDP, so more spending increases GDP. Government austerity will cause a lower GDP number to be reported but that can mask the benefits of reduced spending. Second, government spending can increase employment by, for example, have one group of people dig ditches and another group fill them in. That, obviously, is not wealth-producing, but nonetheless is counted towards increased GDP.