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The recent elections in Europe have many policymakers and pundits proclaiming “an end to austerity.”  Here is Washington Post columnist Eugene Robinson:

Economic austerity is a dangerous, self-defeating intellectual fad. Perhaps I should say that’s what it was, given Sunday’s election results in Europe. Perhaps I should also say good riddance. Voters in France, Greece and even Germany — a hotbed of the austerity cult — told their political leaders, in no uncertain terms, that boosting economic growth is more important than cutting government spending.

This is certainly one plausible interpretation.  But here are a few other things to keep in mind.

First, it’s important to put the austerity measures that have been pursued of late in context.  The various cuts and reforms differ significantly depending on the country in question. But according to European Commission data, analyzed by economist Veronique de Rugy, few countries in Europe have cut spending much at all.  It is simply not accurate to say, as some have, that a “‘dismantling’ of the welfare state” has been taking place.

One thing austerity opponents and austerity supporters can both agree on is a need for robust, sustained economic growth.  And here is where some of the anti-austerity advocates have some explaining to do.  Even if we assume an end to cuts in government spending, or a reversal, there has been little proposed by the anti-austerity forces that might actually help generate sustained growth. Europeans have been talking about the need for growth for years now, but genuine growth-oriented reforms are few and far between. Indeed, one of the reforms proposed by the incoming French president would dramatically hike taxes on French investors. This might raise money for government coffers in the short run, but will almost certainly dampen investment-led growth in the longer run.

It’s true a country’s government can’t cut its way to prosperity, any more than it can spend its way to prosperity.  Prosperity emerges as the byproduct of a dynamic private sector.  There’s a legitimate role for government, to be sure; but it has much less to do with spending programs than it does with ensuring an economic climate that rewards risk-taking, equity formation, and productive entrepreneurship. 

Lastly, it’s important to recognize that regardless of whether the recent elections mark an end to austerity or not, other significant  problems Europe faces – demographic pressures of an aging society [link to Ted Fishman paper], too few prospects for entrepreneurial dynamism – remain. When the political debate over austerity passes, these issues will loom large and will determine the economic path of the continent for the next generation.