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Kasz216 on 24 April 2012
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Ail said:
Kasz216 said:

Lately there have been more and more articles in the US complaining about Europeon Austerity and how it will destroy the country.

It makes me wonder what other option there actually is.   The europeon Debt Crisis is happening because a number of countries didn't cut spending when they could and are rapidly approaching (or already reached) the point where they can't pay off their debts.

Some people are saying that instead they need to keep spending up, possibly even increase it and hope to outgrow the debt.

Which seems impossible just based on the fact that they weren't outgrowing their debt even when the economy was good.


The only real way to get out of it, is to try and spur growth while NOT increasing debt.  In otherwords, Austerity, and then a bit beyond normal austerity to provide pro-growth changes.


In otherwords cut more then you need to and put that extra money elsewhere.

By definition austerity cuts growth...

I'm not saying that governments should keep spending like crazy but any measure that reduce growth noticeably actually makes debt worse despite the reduce spending...

It's not difficult to do the maths...

 

Lets say country A deficit is 100% of GDP, it's running a deficit at 8% and 2% growth.

Next year the deficit will be 105.8% of GDP. So a deficit increase of roughly 6% of GDP.

 

Lets say country B deficit is 100% of GDP, it's running a deficit of 4% and negative 2% growth.

Next year the deficit will be 106.1% of GDP... Deficit increased a little more and due to the negative growth the amount of people needed social help actually increased in the country, making next year government finances look dire...

 

I'm not saying they shoudn't cut debt, but when you cut so far that it negatively affects growth it actually make things worse, which is what others countries have asked Greece and Spain to do.........

 

The new Deal is what got the US out of the Great Depression, not Austerity....


A) That's only if you count government spending as growth through crude silly GDP calculations.   I mean, why don't we just spend 1000 trillion dollars a year over budget then?

If you really need a big overwhelming calcualation  C+I (X-M) would be better suited to be used for anything more then pure academic curiosity.

B) The New Deal did not get the US out of the Great Depression... practically no Economist believes that.  Not even modern Kenysians... they argue WW2 got us out of the war and WW2 should be counted as Government Stimulus since war greatly increases government spending.

That the new deal got us out of the Great Depression is roughly analagous to "Christopher Columus discovered the new world."