Lesson From Europe: Fiscal Austerity Kills Economies

[Donnachaidh]

http://www.newdeal20.org/2011/01/25/lesson-from-europe-fiscal-austerity-kills-economies-33730/

ollowing faux-reasonable Rubinite advice will only put Americans further into debt.

There’s more evidence that fiscal austerity should never be a government policy objective. The UK has just released its 4th quarter GDP numbers and the results are predictably grim: a -0.5% decline in GDP for the last three months of 2010, versus a market expectation of +0.4%.

This comes as no shock to anybody who understands basic sectoral flows. Taking income out of the private sector in the absence of any countervailing flows from the government or external sector means lower output, slower growth and higher unemployment. The UK economy’s performance is totally consistent with this analysis.

Yet the FT is flooded with articles from the likes of Roger Altman and Robert Rubin. Why let evidence get in the way of a good neo-liberal theory? Neither Altman nor Rubin understand that it would be ruinous for this country if the federal government took their advice and pursued budget surpluses at a time when the external sector is in deficit and the private domestic sector needs to save to reduce its damaging debt levels. They, like virtually all mainstream economists/policy makers, haven’t taken the time to understand the sectoral balances. If they had, they would know that they are pursuing a strategy that would force the private sector into further debt. That’s precisely what’s happening in the UK.

More at the link --

[Autumn]

1. It works great, if

that's their plan to begin with. It does seem that way.