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Why Austerity Inevitably Backfires

The purported objective of austerity measures (tax hikes and spending cuts) is to improve the debt-to-GDP ratio by cutting the annual deficit. But, it is well known that such measures negatively impact the economy (GDP) — in fact, there are tables of multipliers telling by how much each measure can be expected to negatively impact the GDP.

Suppose that your austerity measures are so good that they drive the deficit to zero. The next year, your debt-to-GDP ratio (debt/GDP) will still have the same debt in its numerator and a shrunken (negatively impacted) GDP in its denominator for a net increase in debt/GDP, which is the opposite of the purported objective of austerity measures! I have a tedious example here, at comment #5.

This is intended to arm the righteous with an explanation that can be delivered during an elevator ride.

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