This problem is especially pernicious under a policy of generalized austerity because if a country’s private and public sectors are both paying back debt at the same time (deleveraging), then the only way that country can grow is by exporting more, preferably with a lower exchange rate, to a state that is still spending. But if everyone is trying the same strategy of not spending, as is happening in Europe today, it becomes self-defeating. The simple story of “too much debt, cut it now” becomes surprisingly complex as our own commonsense actions produce the very outcomes we are trying to avoid, and the more we try to cut, as Greece and Spain are proving to the world, the worse it gets. We cannot all cut our way to growth, just as we cannot all export without any concern for who is importing. This fallacy of composition problem rather completely undermines the idea of austerity as growth enhancing.

Mark Blyth, Austerity, loc. 48