Kimon Valaskakis comments: Both Mark Carney and David Dodge are, in my opinion quite right. Austerity policies have no place in a rich economy where the main present challenges are (1) better distribution and (2) unused capacity. First, placing money in the hands of people who are likely to spend ( i.e the poor and the middle classes ) is the best way to stimulate growth for all. This means no austerity but, on the contrary, generous government policies - not wasteful, but intelligent and targetted. This is something I have consistently argued for, in my various posts and is even truer today. Second, restricting spending when the unemployment and underemployment levels are high ( as they are in most Western countries ) is actually quite masochistic because of two words UNUSED CAPACITY . When a person is not working today, but could be working, the fruits of his/her labour are lost forever. In Greece, for instance, the gap between actual GDP and potential GDP ( if everyone were employed ) from 2009 to 2013 was huge and was due to unused capacity, and idle resources not being employed. The Greek unemployment rate is now over 25% and over 50% for youth. This is quite shocking and represents a waste of valuable factors of production, in the name of a superficial goal, balancing the government books. The time to introduce belt tightening is when we have reached the edge of what we call in economics the production possibility curve where new consumption must lead to giving up other things. In this case, there is imply not enough for all. This is not the case when you have unused capacity and needy people with little purchasing power. Therefore austerity, under the latter conditions, is a huge mistake and should not be a government priority now.
Posted on: Fri, 27 Jun 2014 01:18:14 +0000