Monday, 2 December 2013

Here we go again – the craziness of economic austerity

Simon Wren-Lewis, an economics professor at Oxford University, and a fellow of Merton College writes on his blog mainly macro: Here we go again.
1) Government embarks on austerity, to try and maintain the confidence of the bond markets. We must preserve the AAA rating for our government’s debt, says the finance minister.
2) Austerity reduces demand, helping create flat or negative growth. As a result, deficit targets keep being missed. Additional austerity is imposed, and growth declines again.
3) Country loses its AAA rating, and the credit rating agency gives concerns about poor growth as an important factor for the downgrade.
4) This confirms our fears, says the finance minister. We must redouble our efforts to reduce our debt.
This will sound familiar to UK ears, but it is also what has just happened in the Netherlands.
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