Get a Grip: Austerity Does Not Produce Prosperity

[depakid]

Austerity has suddenly become the universally prescribed cure for the fallout from the financial collapse. If widely adopted, it will prove worse than the disease.

The price of the rescues of Greece, Spain and Portugal will be brutal deflation. The International Monetary Fund, which supposedly learned from its earlier mistakes of imposing austerity on already damaged economies, is back in cold-bath mode, demanding higher taxes and dramatically reduced spending as its pound of flesh.

The European Central Bank and key leaders of the E.U. are promoting economic pain as the price of relief. Here at home, President Obama has sworn off serious new outlays for jobs or aid to the states, and is using his fiscal commission to pursue a bipartisan consensus on spending cuts and higher taxes.

The nations of the European Union are being treated as the object lesson in the costs of profligacy. This is supposedly what happens when you provide decent social benefits to regular people. In fact, most of Europe had reasonably well-disciplined budgets until a made-on-Wall-Street economic crisis took down their economies.

The budget deficit here and overseas does need to return to a more moderate level -- after we get an economic recovery. But the problem with the austerity treatment during a recession is that if everyone tightens their belts at once, there is nobody to buy the products; the economy shrinks and repayment of debt is even more arduous. As John Maynard Keynes famously wrote, "The patient does not need rest. He needs exercise."

You don't have to be a Keynesian to recognize that the economics of belt-tightening is a fool's errand in a recession.

More: http://www.huffingtonpost.com/robert-kuttner/get-a-grip-austerity-does_b_586611.html

[Hannah Bell]

1. austerity = double-dip recession-cum-depression + death

latvian economy has declined by over 25% to date.

spanish unemployment over 20%.

this kind of thing causes death.

but the banksters are doing well. go banksters!

[Kringle]

4. Latvia,Spain,Greece, bubble economies unwinding .nt

[Chulanowa]

2. While true, this misses the point

The goal is not to help these countries. Austerity plans have never been suggested to get economically collapsing nations back on hteir feet. The point is to liquidate everything in the country and sell it off to the highest bidders.

[classysassy]

3. I am not an economist

but there is something fishy world wide,the crooks are looting the banks.