• Dire austerity


    A recent blog post by Simon Wren-Lewis, on how current austerity measures are pushing Europe even deeper into recession.

    This is all very crude, but the basic message remains unchanged. Once we correct for the economic cycle, the core of the Eurozone are expected to run surpluses that are sufficient to bring down the level of debt, whereas the US, UK and Japan are planning to run deficits. In normal times, and particularly if we were in boom times, the Eurozone could rightly congratulate itself, and make disdainful remarks about policy elsewhere. During the current period in which the private sector is running an unusually high level of net saving it is completely the wrong policy. As the textbooks tell us, without the will or ability to provide offsetting monetary stimulus, this level of austerity will cause a recession, and sure enough it has.

    I guess the ruling elite in the Eurozone are telling themselves that the current recession is all a result of the 2010 crisis caused by profligate governments in the periphery, and that if everyone pulls together by cutting spending and raising taxes things will come good. That has been the story for the past two years, and we are still waiting. Those who opposed this policy said that the market crisis could only be solved by ECB action, and that has turned out to be the case. We also said austerity of this kind would kill any recovery, and on that we were also right. So with macroeconomic theory, plenty of empirical evidence and recent events on our side, there is just no contest in terms of which narrative is correct.

    Foud for thought at a time when the French government prepares even more austerity measures (see Le Monde today):

    “On est à l’os”, entend-on de tous côtés. “Ce n’est pas le train de vie de l’Etat auquel on touche désormais, c’est aux moyens d’assurer les missions de service public.”













    Graffiti in Norwich, England, in July. [Photo by Gerry Balding]

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