I'm getting to this one a little late, but last weekend the New York Times had one of those big economic stories that just cried out for checking into the real data. Here are the headline and sub-headline: "Portugal Dared to Cast Aside Austerity. It’s Having a Major Revival. At a time of mounting uncertainty in Europe, the country has defied critics who insisted on austerity as the answer to the Continent’s economic and financial crisis." Do real data actually back up this narrative?
Before getting too far, we should have a review of the defined term. What is "austerity"? From my post of August 18, 2013 ("The Horrors Of 'Austerity,' Singapore Edition"): "[T]he term "austerity" is a befuddled Keynesian mixture of low government spending and taxes sufficient to cover all spending." I've never understood why, in the progressive press, the alternatives for economic policy get divided between lower spending/higher taxes ("austerity") on the one hand, and higher spending/lower taxes ("stimulus") on the other. What about lower spending/lower taxes? You never hear about that one. As my 2013 post noted, Singapore has long been the world champion of the combination of both low taxes and low spending, which have been accompanied by decades of world-beating economic growth, prosperity, and low unemployment. (Singapore's GDP per capita is approximately equal to that of the U.S.)
So what does the Times have to say about Portugal? It seems that in late 2015 a new leftist government got elected and took office in Portugal, promising an end to the "austerity" of the previous guys. In Times-world, this is the cause of an economic revival:
In 2015, [the new government] cast aside the harshest austerity measures its European creditors had imposed, igniting a virtuous cycle that put its economy back on a path to growth. The country reversed cuts to wages, pensions and social security, and offered incentives to businesses. The government’s U-turn, and willingness to spend, had a powerful effect. Creditors railed against the move, but the gloom that had gripped the nation through years of belt-tightening began to lift. Business confidence rebounded. Production and exports began to take off. . . .
Is that really what the data show? Sorry, you will not find any detailed basic data here. However, if you do keep reading in the article, you will start to wonder what they are talking about when they say that the new government "cast aside austerity." For example:
“The actual stimulus spending was very small,” said João Borges de Assunção, a professor at the Católica Lisbon School of Business and Economics. “But the country’s mind-set became completely different, and from an economic perspective, that’s more impactful than the actual change in policy.”
But doesn't "casting aside austerity" at the minimum mean allowing government spending in the aggregate to increase substantially? In this case, it seems, not so much:
[Prime Minister] Costa . . . cut . . . infrastructure and other spending, whittling the annual budget deficit to less than 1 percent of its gross domestic product, compared with 4.4 percent when he took office. The government is on track to achieve a surplus by 2020, a year ahead of schedule, ending a quarter-century of deficits.
I thought that cutting government spending and shrinking the deficit was the very definition of "austerity." Has the exact same thing now become "casting aside austerity"? Unfortunately that's as far as the Pravda article will take you with actual data. To get a more complete answer to the status of macroeconomic policy in Portugal, we will need to look elsewhere. Fortunately, relevant data are easily available.
For example, we can look to the Trading Economics site to get data for the ratio of government spending to GDP in Portugal. Here is their chart for Portugal:
Whoa! -- Government spending had been up around 50% of GDP, and even substantially above, from 2009 to 2014; but then it fell from 51.8% of GDP in 2014 to 44.9% in 2016, before having a small increase back to 45.9% in 2017. A cut in government spending of 7% of GDP would be the equivalent in the U.S. of cutting government spending by $1.4 trillion! Isn't that far and away the big thing that happened here?
Or, from the same source, we can look at government fiscal deficit as a percent of GDP. Here's that chart:
And finally, here is the Trading Economics chart of economic growth in Portugal, by quarter:
Here would be my interpretation of these data: The previous government implemented large spending cuts in 2015 that carried over into 2016, and the economy responded with a growth spurt in 2016 and into 2017. The new government implemented a relatively modest spending increase in 2017, and it's probably too early to tell whether that increase has had any effect and if so how much. Growth in the first two quarters of 2018 is somewhat lower than it was in the first two quarters of 2017, but perhaps not significantly so. In any event, growth is running around 2% annually now, which does not seem like anything to brag about to me.
Portugal's GDP per capita is about $23,000 -- well less than half that of the U.S. With economic growth running around 2% per year (versus the most recent 4% for the U.S.), Portugal is only falling farther behind. How is that the "major revival" claimed by the Times? If they really want to be competitive, I would suggest getting government spending down under 40% of GDP.
UPDATE, July 30: The Gatestone Institute had a post on July 26 on the subject of the new ruling coalition in Portugal. It included the following:
[T]he ruling coalition now has the contribution of a toxic partner -- the "Bloco de Esquerda" ("Left Bloc") -- which has been demanding implementation of its extreme social, economic and foreign policy agenda in exchange for political support. Since its formation in 1999, through the convergence of the neo-Marxists, Trotskyists, feminists and environmentalists, this bloc entered the scene like a political Trojan Horse, and gradually took rootin academia and other cultural institutions, to the point at which it now wields actual parliamentary power. This power has taken the form of an intensification of a neo-Marxist agenda, ranging from a near-successful attempt to legalize euthanasia, disproportional defense of animal rights, gender modification for anyone 16 and older, and a series of draconian anti-private-sector measures. Yet, not a word from Portuguese media platforms.
I guess that's what they spin in Pravda as "casting aside austerity." So far, no particularly noticeable effects on economic performance. But, as we know, it takes quite a while for the Socialist Death Spiral to take hold.