Voices from Russia

Friday, 11 November 2011

Austerity is NOT the Answer

Filed under: economy,EU,politics — 01varvara @ 00.00
Tags: , , , ,

How ’bout some AUSTERITY for these guys?


The most dangerous myth of all is that governments can best contribute to economic recovery through policies of austerity, cutting government spending, and raising taxation. The proponents of such action claim that as well as reducing debt, such policies will make room for the private sector to expand. We can trace the idea of “expansionary austerity” to work undertaken in the 1990s by Alberto Alesina and various co-authors. Although widely discredited (even by some of his co-authors), these ideas appeal to the wishful thinking of those who want to see themselves as “wise men”, the equivalents of the Very Serious People who stand for the conventional wisdom in US policy debates. In fact, there’s overwhelming evidence that the short-term impact of austerity measures is to reduce the rate of economic growth, thereby reducing government revenues and increasing necessary expenditure on unemployment benefits and other welfare measures. As well as worsening the recession, these effects will offset much of the improvement in the budget balance that one might expect from austerity measures. In the long run, it is clear that Greece (and to a lesser extent other European countries) needs to improve its budget balance. The experience of the crisis suggests, if anything, that the target of a deficit equal to 3 per cent of national income, and debt equal to 60 per cent of national income weren’t ambitious enough. To respond adequately to a crisis, governments need the fiscal space created by exercising discipline in good times. However, these are not good times. There’s no point fixing long-term budget problems if the short-term result is the collapse of national economies, and possibly of the Euro-zone as a whole. Of all the myths coming out of the Greek crisis, austerity is the most dangerous.

11 November 2011

John Quiggin

The Daily Beast


Editor’s Note:

I’d simply add that the resounding two-to-one defeat of John Kasich’s union-busting attempt in Ohio shows that the people are NOT going to give back the gains of the New Deal… at least, not any more. The fatcat denizens of McMansions must shoulder their fair share of the burden… and if they refuse to do so, I’d advise them not to be surprised if an angry mob shows up outside their door. People get funny when their livelihoods are threatened… I’m not making threats, I’m simply prophesying…



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