Karl Smith speculates on the origins of austerianism:
My current explanation is that this is a transfer of logic from the way certain body tissues operate. Its clearly the case that skin, muscle and connective tissue respond to stress by growing: a process known as hydrotherapy. This might also be the case with nervous tissue and some other, though importantly not all, tissues. This is an interesting and important phenomenon that details the power of highly complex evolutionary systems. Yet, it is a fool’s errand to apply this to the world writ large.
When you stress most things they don’t grow back stronger, they break. When you apply job losses to an economy people don’t become hardier, they become poorer. The idea that tough love will lead to a better economy in the long run is just wrong. Not mean. Not heartless. Not insensitive. Wrong.
I think Paul Krugman’s old account of “Hangover Theory” more likely gets at the source of the problem. Most people are not very interested in the details of public policy disputes, but people recognize that politics is in some sense important. So since politics involves both empirical and ethical issues, people tend to gravitate toward moralistic accounts of what’s going on. The idea that a boom is necessarily followed by a bust that you just have to grit through both contains a little bit of truth* and constitutes an appealingly moralistic argument.
The underlying issue is the pretty general one that people’s intuitive understanding of economic growth is not very good. When faced with trade, or immigration, or technological progress, or improved conditions for a racial or religious minority group, people tend to respond with anxiety that more for someone else means less for them. The idea that these things can actually push the production possibility frontier outwards doesn’t come automatically to people who haven’t received explicit instruction. I think it’s the same with the business cycle and intertemporal tradeoffs. People figure the money has to come from somewhere so if fiscal or monetary stimulus helps anyone, it can only be by hurting some other people or else by somehow stealing resources from the future.
The reality is the reverse. Growing slower than we could in 2010 doesn’t help us grow faster in 2011 or 2012. Instead it semi-permanently reduces our ability to produce future goods and services.