Monday, 5 June 2017

Could Austerity's impact be persistent?

That is the title of Simon Wren-Lewis latest article.

In particular he draws on Gustav Horn and others at the IMK Institute. They in turn use the work of both Blanchard and Leigh and Fatas and Summers. ( Simon handily links them all.)

In essence it means if you adopt austerity policies at the wrong time then it has very harsh effects on the economy.

I might end that a lot of the problem is understanding basic fiscal policy. Let us takes our mate Katesy and the others at Catallaxy. They all think if there is a deficit then the Government is trying to pump prime the economy. This is what they see as the problem in Europe when it has been the complete opposite. This is why for example Sinclair Davidson can criticise Swan's last budget he had responsibility for as expansionary when it in fact detracted 0.7 percentage points from GDP. This was the tightest budget in budget history !!