Spending-cut austerity supposedly boosts private investment while tax hikes depress it

Evidence

As Alesina astutely summarized: “What keeps an economy from slumping when government spending, a major component of aggregate demand, goes down? … Th e answer: private investment. Our research found that privatesector capital accumulation rose aft er the spendingcut defi cit reductions, with fi rms investing more in productive activities— for example, buying machinery and opening new plants… . Aft er the taxhike defi cit reductions, capital accumulation dropped” (Alesina 2012). Furthermore, Alesina and Perotti (1995) claim that “the main theoretical reasons which suggest that fi scal adjustments may not be contradictory is the ‘crowding in’ argument: a reduction in the government borrowing requirement, by reducing interest rates, may ‘crowd in’ private investments” (1995, 21). — Clara E. Mattei, The Capital Order, 1738

Categorization

• DEFINE: Names and explains the ‘crowding in’ mechanism that underlies expansionary-austerity theory.
• XREF: Connects to the reader’s wider study of austerity as class weapon: this is the core intellectual justification tying deficit cuts to capital accumulation. — connects to: Government borrowing crowds out private investment by competing for limited savings — Clara E. Mattei, The Capital Order: How Economists…, 1694; Austerity is a recurring policy suite that entrenches wealth and private primacy — Clara E. Mattei, The Capital Order: How Economists…, 21; Austerity kills investment by suppressing the aggregate income that justifies new capacity. — Yanis Varoufakis, Technofeudalism: What Killed Capitalism, 393 (+2 more)

Broader Connections

• Austerity kills investment by suppressing the aggregate income that justifies new capacity. #contradicts (0.95) — Yanis Varoufakis, Technofeudalism, 393
• Austerity’s core claim that cuts lead to growth is dangerous nonsense #corroborates (0.80) — Mark Blyth, Austerity, 15
• Austerity is a recurring policy suite that entrenches wealth and private primacy #expands (0.75) — Clara E. Mattei, The Capital Order, 21
• Austerity is a counteroffensive that shifts resources from workers to investors. #expands (0.72) — Clara E. Mattei, The Capital Order, 1467