Gary North On Why the World Needs Austerity

If there were real austerity – a reduction of government spending by at least 30% – the private sector would have to adjust to a world in which economically productive customers, not those receiving government handouts, increasingly drive their economies.

The economic costs of making this transition would be high. Capital is not homogeneous. It is not digits on a balance sheet; it is a structure of the tools of existing production. It has been misallocated because of the Keynesian interference with the economy for six decades. Today's capital must be re-priced and re-allocated. There would be a stock market crash, as capital is re-allocated. Today's tools are priced in terms of government spending. This is the benefit of austerity: a shift back to greater private sector productivity. It would come at a cost.