Macroeconomic Impact of Austerity (TLDR: It's bad don't do it, unless your economy is designed to be compatible, which is also rare and situational)

Of course, this comes as not a surprise, but austerity is bad, and so it is in the game. But the question is whether it is bad enough, for example, in the study which I’m going to link here which looks at the Macroeconomic impacts of Austerity in the EU, austerity lead to a 30% cut in Greek Wages, which undermined social cohesion, the EU Social Model and other things. Lower Government does not just smaller government, it also means smaller economy, smaller economy equilibrium (bad equilibrium), smaller markets (people buy more when they have more), etc. So, the best way to perhaps balance austerity in game is to have a look at this study perhaps (among others), it ties into my one of older posts, where I discovered (by turning political capital off) that following a strictly neoliberal (not American Right-Libertarian/Classical Liberal) economic policy vs a strictly big government policy, leads basically to the market solving a good chunk of the problems. This is not reflected in real life, except when economies are in a particular state, such as when Ronald Reagan came into power and supply-side policies were king in the west for a long time (he expanded Medicare spending and defence spending, while cutting taxes and so-to-speak balancing the budget, but debt increased a lot from 1980 onwards in the US, so it wasn’t an entirely strict neoliberal program either, Pinochet tried it, the economy grew, but so did inequality). In real life, outside of the Chicago/Austrian School, very few economists suggest that austerity is good, blindly small government is good, inflation must be checked before anything else, that markets do not fail, only governments do, etc. Markets do fail, and they have failed in the past. During the Great Depression, letting things be (and deflation) did not solve it, massive government expenditure during the post-hoover administration, the New Deal and military Keynesianism (and some would say, yes state capitalism) eventually pulled the US out of poverty and its bad equilibrium. This is not to say that the free-market does not have its place (its massive productive capacity), but unchecked growth just gives more power and wealth to the already powerful and wealthy and it doesn’t do any favours for anybody else. Only taxes redistribute that wealth to everybody not growth by itself, unless say the economy already had a well-established base of small holdings and small businesses, which then would probably ensure that growth went to everybody, but the government would still need to step in with regulation to prevent a monopoly. Perhaps the game needs to model growth based on different models, if it’s not too complex.

  1. 24385696.pdf - Google Drive (Study on the macroeconomic effects of Austerity in the EU)

  2. The Chicago Boys in Chile. The ‘Chicago Boys’ in Chile: Economic Freedom’s Awful Toll | The Nation

  3. Aggro Neolib v Aggro Statism

When austerity works (i.e. when it’s compatible with your economy):

  1. Expansionary fiscal contraction - Wikipedia