If you listen to those on the political left, you will think that the ongoing meltdown in the euro zone proves that spending cuts are driving the world into another Great Depression. Paul Krugman called the fiscal retrenchment “criminal folly,” while the famous British journalist Polly Toynbee affirmed that “the great austerity experiment has failed.” Adopting this view, at their recent Camp David summit meeting, leaders of the G8 nations agreed to pursue growth and job creation ahead of deficit reduction.
On the other side of the ideological divide, there are those who say that austerity did not fail, because it was not tried in the first place. That’s because to date we have seen very little in terms of absolute cuts in public spending. Rather, due to automatic stabilizers, spending has increased in absolute terms since 2008, although probably not by as much as it would have without some of the deficit-reduction programs.
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