This paper looks at the planned austerity measures in Spain, the rationale for the spending cuts and tax increases, likely outcomes for future debt-to-GDP ratios, and the probable results of alternative policies.

President Obama and the Democratic leadership will undoubtedly have to make some political compromises in order to get a stimulus package through Congress. However, it is important to keep in mind that there will be real costs associated with these compromises insofar as they result in a less...