May 7th, 2012

We must move beyond growth versus austerity

Economics & Politics

French and Greek voters have rejected Europe’s current macroeconomic framework.  The headlines cry that voters demand growth rather than austerity.  Yet growth is not a policy but an outcome.  A vote rejecting the incumbents does not define the policy alternatives.

There are four main schools of macroeconomic thought.  Keynesians focus on boosting aggregate demand through temporary budget deficits followed by a gradual return to budget balance as the economy returns to full employment.  Free-marketers (confusingly called “liberals” in Europe and “conservatives” in the US) advocate business deregulation plus cuts in government spending and taxes to spur private sector hiring and investment.  Deficit hawks emphasize budget cuts to eliminate the deficit and restore the government’s creditworthiness.  Structuralists call for increased public spending paid for with tax increases rather than deficits, to increase the role of government in education, jobs, and banking recapitalisation.

Read the full post at the Financial Times


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