To those who think Keynesianism is wrong or dead… Budget multipliers work in reverse as well. An expansionary budget may force economic growth, and in a weak economy, produce multiples of growth beyond initial expenditure, but the reverse is also true. The Greek budget deficit averaged 7.3% of GDP from 1995 to 2013. This year it stands at 12.7%. Despite massive, painful budget cuts, the economy has shrunk by a quarter since the beginning of the GFC, and shows no signs of recovery (one of, if not the, most brutal depressions in economic history). This is also why budget deficits can only be used for short term stimulus measures; a heavily indebted nation loses control of its fiscal policy.
Posted on: Mon, 26 May 2014 22:33:31 +0000
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