Austerity during a recession is about as logical as putting a malnourished patient on a starvation diet. Line up all the Nobel Prize winning economists, ask them if a recession demands austerity or stimulus, and… I’ll bet 80%+ will say stimulus.
The problem in a recession isn’t a lack of discipline, it’s a lack of demand. Put simply, people are spending less money on… stuff. So companies cut back production of stuff. And workers who make the stuff start to lose their jobs.
It’s really not rocket science. When you’re in the middle of a recession, the only way to get out of it is for demand to increase. And if the private sector is not buying enough stuff, then it’s up to the government to increase purchases of stuff until demand is high enough that: 1) Companies produce more stuff; 2) Companies need more workers; 3) More workers get hired; 4) Those workers, now with more money, are confident enough to buy more… stuff!
Is fiscal discipline important in the long term? Of course. But in the middle of a recession, or even a slow-growth period (like now), austerity doesn’t help, it makes the problem worse. If demand for stuff is already low, why the hell would cutting demand even further possibly be a good idea?
Resist stupid policies. They may be seductive in their simplicity (hey, railing against “government waste” is always a crowd pleaser), but if they don’t work, they don’t make sense.
(P.S. – there are also lots of nice numbers and pretty charts to back this up. As an an econ geek myself (warning, PDF), I’m happy to dig through that, but… really the “stuff” argument pretty much sums it all up, so I’m keeping my inner geek properly restrained, and holding off on more)