Austerity, Stimulus and Beyond
In case you’ve been following the discussion here about austerity and stimulus or microeconomic vs. macroeconomic ideas for ending the global recession, the following might be interesting.
Check out the April 28, 2012 issue of The Economist, which had Francois Hollande on the cover with the headline, “The rather dangerous Monsieur Hollande.”
The Economist is a center right publication and my impression is that the editorial board are not believers in Keynesian economics. Nonetheless, a column on page 61, “Charlemagne,” had this to say about austerity: “Germany’s predilection for all-round austerity is a mistake, with financial markets now worried as much about deep recession as about deficits.”
Austerity is a negative stimulus to an economy. Less money circulating means more unemployment, which means more people falling into the social safety net, which means more deficits. It’s better to have deficits that serve the broader purpose of stimulation than to simply spend on supporting the dole.