Tuesday, April 24, 2012

Read This Now - Why Austerity Does Not Work

I've been meaning to put something together on the wrong-headedness of the austerity binge as it drags Europe ever further down the economic drain, but I haven't gotten around to it.

Luckily Henry Blodget has; he succinctly explains why austerity doesn't work and why Keynes was right, or at least provided the least bad way to get out of a recession / depression...

The reason austerity doesn't work to quickly fix the problem is that, when the economy is already struggling, and you cut government spending, you also further damage the economy. And when you further damage the economy, you further reduce tax revenue, which has already been clobbered by the stumbling economy. And when you further reduce tax revenue, you increase the deficit and create the need for more austerity. And that even further clobbers the economy and tax revenue. And so on.
Basically, austerity puts you into a death spiral in which you keep trying to cut your way to prosperity, but all you end up doing is digging a bigger hole. And in the meantime, tens of millions of people are out of work, the economy is retrenching, and everything is generally miserable.
The whole thing is worth reading and will only take you a few minutes.

(via BDL)

No comments:

Post a Comment