Wednesday, 30 December 2015

Fiscal consolidation.

I have written about fiscal consolidation quite a lot.

This is possibly the best.  This is earlier but still pretty good.

Let us go back to basics.

If you introduce austerity too quickly you will make the economy weaker.

Wayne Swan did this in the last budget he ever had responsibility for. He cut NOMINAL spending and detracted 0.7 percentage points from GDP.
Did this help strengthen the economy? No of course not.

So only a complete imbecile would advocate right! yes and that can only mean they have no knowledge of fiscal policy nor of history. Nasty stuff that peroxide!

I didn't think I had any need to say this but part of the problem is fiscal policy is far more powerful then we previously thought although Adam Posen showed this with Japan in the 90s a long time ago.

Also monetary policy loses a lot of potency as interest rates get to very low levels as Glen Stevens has ponted out and Wayne Swan found out to his chagrin!