About Austerity.

• Author: Rogoff, Kenneth

Austerity: When It Works and When It Doesn't by Alberto Alesina, Carlo Favero, and Francesco Giavazzi (Princeton University Press, 2019).

In Austerity: When It Works and When It Doesn't, the central conclusion reached by economists Alberto Alesina, Carlo Favero, and Francesco Giavazzi is one that most modern-day Keynesians and progressives will hate. In cases when circumstances have forced a country into fiscal retrenchment, the authors show, cutting government spending has cost less than tax increases in terms of foregone output and employment.

Readers should know that this is no ideological diatribe. Alesina, Favero, and Giavazzi have conducted cutting-edge empirical research on sixteen advanced economies to draw lessons that could not have been garnered from analyzing any one country or episode in isolation. Austerity is a towering scholarly achievement, embodying decades of research and destined to serve as a touchstone for future studies--both by those who will build on it and by those who will try to tear it down.

In the very first line of their book, Alesina, Favero, and Giavazzi surpass the many blunderbusses that are published about austerity when they actually define the term. "Austerity," they write, "indicates a policy of sizable reduction of government deficits and stabilization of government debt achieved by means of spending cuts or tax increases, or both."

As opening lines go, this might not stack up with Anna Karenina or Moby Dick. But it is a breath of fresh air compared to angry polemics that carelessly toss around the word "austerity" to encompass a dizzying range of economic issues, ranging from fiscal retrenchment under market duress to any policy that slows the march to socialism.

It is important to mention that Giavazzi and I both had the late Rudiger Dornbusch as our thesis adviser at Massachusetts Institute of Technology, and that Alesina and 1 are colleagues at Harvard University.

HARD TOPIC, HARD TRUTHS

That said, I do not agree with the authors of Austerity on everything. For starters, I think the book should have included more discussion of heterodox approaches to dealing with unsustainable debt, such as write-downs, inflation, and financial repression. As my Harvard colleague Carmen M. Reinhart and I showed in our book This Time Is Different, these options can sometimes be more attractive than fiscal retrenchment for countries in severe debt distress, and even many advanced economies have used them more recently than is commonly thought. Equally important, these measures are not the same thing as austerity, though some journalists and other commentators often treat them that way.

Of course, no single book can address the full scope of issues, especially if its purpose is to conduct...