Originally Posted by DiegoArmando
So are there or are there not academic schools of thought which support the idea of austerity in the current economic climate?
If there are, I would like to read them. Please link here.
What I have been led to believe is that, basically, if no one has money, no one spends money (ground breaking stuff here), so in order for the economy to move in the right direction, the gov have to spend, even if that means borrowing more. In fact, it's times like now they should be borrowing more to invest in the economy.
That seems quite simple to me. I'd like to know why (if) that is not true.
If you owe X lots of money and the rate you are increasing your debt is increasing 24 Billion a month, you dont want X to charge you more to borrow, especially when any increase in costs would also be passed on private borrowers, which in Britain have the highest debt per capita in the world (an issue Leeds fan keeps dodging due to his vacuum of intellectual honesty.) This is completely ignoring any issues of Mal investment which I will get into later when I have more time.
Borrowing even more (when it is perecieved by lenders that you are at your absolute borrowing limit) increases risk of default, therefore increases risk of borrowing. I actually think in a vacuum that government spending in a recession is a good idea, much better than the horribly inequity of quantitive easing, however its not such a great idea when the fiscal situation is so utterly ****ed up. (Of course we could seize land or legalize drugs.....lol...leeds fan lol)
Its also important to understand that GDP can be a very misleading statistic. Upto the crash we had strong GDP figures, but the economic factors driving that GDP growth (unsustainable credit expansion) were baking economic disaster into the cake. If we could get banks to lend like they were in 2004 again, there would be massive GDP growth tommorrow, should we do that, of course not, because it would just mean a bigger crash. Its important to escape what Will Self calls the fetishisation of GDP were anything that increases GDP is seen as an a priori good. Things that increase GDP can be terrible for the economy in the long term, such as a government borrowing even more just to push string. Thats not to say dont seek to increase GDP, of course, but you must do it sustainably.