And as Brian goes on to point out, Hugh McFadyen's promise to balance the budget on an annual basis would require ridiculous budget cuts... not what Manitoba needs by a long shot.
Sorry, fiscal austerity doesn’t work. For evidence, look no further than the U.K.
This can’t be good news for the U.S. political right, whose mantra has been: cut spending, put a lid on deficits, and growth will improve.
All sorts of good things, it is claimed, will spring from a turn to austerity that stops all this stimulus nonsense and prevents the Federal Reserve from doing more quantitative easing. Reductions in spending, according to a theory known as Ricardian equivalence, will do no harm because lower borrowing will automatically lead to higher private spending. Plus, of course, there is the notion of crowding out, meaning that reining in the public sector leaves room for the private industry to step in and all will be well.
This is dangerous hogwash.
There is little historical precedent in the real world, though lots of fantasizing in the made-up world of economic theorists, to suggest that fiscal austerity works. The best example of austerity’s failure is the double-dip that occurred in the late 1930s in the U.S., when spending was reduced too soon in a nascent recovery. In contrast, the U.K. didn’t have a double-dip because it was engaging in classic Keynesian spending as it began re- arming.
Thursday, February 17, 2011
Conservative austerity - Not what the doctor ordered
Brian at Just Damn Stupid has found this Bloomberg article which shows the folly of cutting budgets when the economy is rocky: