Beware Swan's mindless spending instead Treasurer Wayne Swan has been flogging a new phrase to make a virtue of blowing the budget: TREASURER Wayne Swan has warned major economies against leaning toward "mindless austerity" to repair their balance sheets, as Labor prepares for its own tough budget choices. Again last month: "We reject the heartless philosophy of mindless austerity," Swan said in an essay published by the Chifley Research Centre today. And Swan warns us where this mindless austerity is worst: We need new sources of growth to come from developed economies, particularly Europe, but at the moment fiscal austerity there is a huge brake on growth. Adam Creighton is puzzled. What "mindless austerity"? Where? Government budget deficits in Europe are still up to twice as large as they were before the GFC - when no one described them as austere - and are contributing to already vast public debt burdens. Far from the "savage cuts" of Wayne Swan's imagination, European governments have reduced only the rate of growth of public spending. Even in Greece, a country with little population or economic growth in recent years, spending is still greater than it was five years ago... John Taylor, professor of economics at Stanford University, is puzzled by the renewed faith in debt-financed government spending to revive growth, a practice he says was discredited decades ago... Taylor points to the better economic performance of Poland and Sweden, whose economies have done relatively well and whose governments have tried deliberately to keep their spending in check. Sweden's Finance Minister Anders Borg successfully cut welfare spending and slashed income taxes, including the top rate by 20 percentage points. Sweden's economy is now the fastest growing in Europe. Alberto Alesina, a renowned Italian economist and professor at Harvard University, ... has forensically studied the relationship between budget policy and economic growth in 21 OECD countries, including Australia, from 1970 to 2007, and concludes "not only are tax cuts more stimulatory for economic growth than spending increases, but spending cuts are much more effective than tax increases in stabilising public debt and avoiding economic downturns." He found that a 1 per cent permanent reduction in government spending as a share of national income boosted the rate of economic growth by up to 0.75 percentage points. "Most countries in Europe are actually raising taxes and not cutting expenses; what happens in practice is typically quite different from what is announced," Alesina says... Brief Treasury analysis has suggested the government's massive spending program in 2009 created jobs and made Australia better off, but it has been discredited by independent Australian economists Tony Makin, Ross Guest, and Sinclair Davidson, for instance. Their alternative modelling accords more with what ordinary people would expect from a debt-financed splurge: a sugar hit followed by the ongoing burden of servicing debt.