A question of austerity

It’s the eve of the G20 summit in Toronto and this morning’s FT declares: ‘Scene set for battle on strategy.’ The strategic choice in question is deficit reduction versus stimulus. I confess to being thoroughly confused. I am not talking about the (pseudo?) ideological debate in the UK where, my Sunday newspaper told me, ‘free-market radicals sense a new opportunity to dramatically shrink the public sector’ and where even a neutral observer such as Philip Stephens this morning describes George Osborne’s severe budget cuts as ‘a gamble’. Nor am I talking about the very different approaches of the French and German governments (in an op ed article in yesterday’s FT Wolfgang Schauble wrote that ‘maligned Germany is right to cut spending’) – not to mention the Baltic states, where fiscal retrenchment is biting deeply already. Nor am I talking about the trans-Atlantic differences between policy-makers, with the Americans warning the Europeans not to tip the world economy into prolonged recession, nor what German Chancellor Angela Merkel described as a war between ‘politicians and markets’, with Georges Soros, speaking for the markets, criticising ‘excessive’ budget discipline. I am talking about the economists. There is a veritable cacophony of theorists and practitioners at the moment, spread throughout the media. For every economist who says that fiscal retrenchment is vital for sustainable medium-term growth you can find another who will warn about the risk of a double dip recession. I do not envy our policymakers. On what basis can they decide, with so many learned voices giving them contradictory advice? In any case, it is a subject where the more I read the less I think I know…

1 Comment

  1. Hugo Kijne

    My tip: check out the Nobel Prize winners in economics first. Looks like Europe has been promoting deficit cuts and thus risking the double dip recession. In this case, it is fortunate that ‘agreements’ from these meetings are barely binding once the leaders are back in their own countries.

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