“Austerian” economics: Does the Vienna school favor fiscal deficit reduction even in a subpar economy?


Does the economic analysis associated with the modern Austrian school favor a policy of restraining the government’s fiscal deficit even in a subpar economy, as suggested by those who (pejoratively) label such a policy “austerian”? Because resources are not superabundant even in a subpar economy, the answer is yes, unless (implausibly) the return on the last (lowest-payoff) dollar of government expenditure exceeds the return on private investment.

This is a preview of subscription content, log in to check access.

Fig. 1


  1. 1.

    http://www.urbandictionary.com/define.php?term=austerian. Accessed 18 June 18, 2014.

  2. 2.

    By a debt trap or fiscal black hole, also known as a situation of “unpleasant arithmetic” (see White 2014, pp. 409–12), I mean a situation of such high indebtedness that the interest rate on sovereign bonds exceeds the growth rate of GDP, so that (even supposing that the current budget is otherwise balanced) the sovereign debt is growing faster than GDP simply from compounding, which further raises the debt-to-GDP ratio, in turn raising default risk and bond yields ever further. Eventually, if the government does not begin to run primary budget surpluses, conduct sufficient asset sales, or receive sufficient external gifts, then it must explicitly default on its debt or, if the debt is denominated in its own currency the way US debt is, implicitly default in real terms -- diluting the real value of what it owes -- by printing money faster than was anticipated by the purchasers of outstanding bonds.


  1. Barro, R. (1974). Are government bonds Net wealth. Journal of Political Economy, 82(6), 1095–1117.

    Article  Google Scholar 

  2. Barro, R., (2009). “Government Spending Is No Free Lunch,” Wall St. Journal (Jan. 22), http://online.wsj.com/news/articles/SB123258618204604599. Accessed 18 June 2014.

  3. Baum, C., (2013). “Kinsley, Krugman and Austerian Aliens,” Bloomberg.com (16 May), http://www.bloombergview.com/articles/2013-05-16/kinsley-krugman-and-austerian-aliens. Accessed 18 June 2014.

  4. Desai, M., (2013). “Column: Are we back to the past?,” Financial Express (28 Oct.), http://m.financialexpress.com/news/column-are-we-back-to-the-past-/1187939/. Accessed 18 June 2014.

  5. Garrison, R. (2001). Time and money: The macroeconomics of capital structure. New York: Routledge.

  6. Garrison, R., (1998). Chronically Large Federal Budget Deficits, Free Market Foundation Monograph 18. Sandton, South Africa: the Free Market Foundation.

  7. Gregory, T. E., F. A. von Hayek, Plant, A. & Robbins, L., (1932). “Spending and Saving: Public Works from Rates” [Letter to the Editor], Times of London (19 Oct.), http://thinkmarkets.files.wordpress.com/2010/06/keynes-hayek-1932-cambridgelse.pdf . Accessed 18 June 2014.

  8. Hansen, A. 1941. Fiscal Policy and Business Cycles. New York: Norton.

  9. Hawtrey, R., G., (1925). “Public Expenditure and the Demand for Labour,” Economica, No. 13 (March), pp. 38–48.

  10. Hutt, W. H. (1939). The theory of idle resources. London: Jonathan Cape.

  11. Krugman, P., (2011). “Friedrich Hayek, Zombie,” The Conscience of a Liberal blog (29 March), http://krugman.blogs.nytimes.com/2011/03/29/friedrich-hayek-zombie/?_php=true&_type=blogs&_r=0. Accessed 21 June 2014.

  12. Lerner, A. P. 1944. The Economics of Control. New York: Macmillan.

  13. Ritholtz, B., (2010). “Word Origins: ‘Austerians’,” The Big Picture blog (28 June), http://www.ritholtz.com/blog/2010/06/word-origins-austerians/. Accessed 18 June 2014.

  14. Skidelsky, R. 2011. “The Keynes-Hayek Rematch,” (August 29), CNN World website, http://globalpublicsquare.blogs.cnn.com/2011/08/19/the-keynes-hayekrematch/. Accessed 30 June 2014.

  15. White, L. H. (2012). The clash of economic ideas. Cambridge: Cambridge University Press.

    Google Scholar 

Download references

Author information



Corresponding author

Correspondence to Lawrence H. White.

Additional information

SDAE Presidential address, 24 November 2013. I thank Patrick Newman for research assistance.

Rights and permissions

Reprints and Permissions

About this article

Verify currency and authenticity via CrossMark

Cite this article

White, L.H. “Austerian” economics: Does the Vienna school favor fiscal deficit reduction even in a subpar economy?. Rev Austrian Econ 27, 351–358 (2014). https://doi.org/10.1007/s11138-014-0278-4

Download citation


  • Austerian
  • Austerity
  • Austrian
  • Fiscal deficit
  • Free lunch
  • Hayek
  • Keynes
  • Mises
  • Multiplier
  • Ricardian equivalence
  • JEL codes
  • B2
  • E3
  • E6
  • H6