Monday, June 04, 2012

Austerity isn't a choice!

If you are already in debt, then you cannot get out of this mess (or hole) by borrowing more. Or can you?

This is oft repeated argument you will hear in current crisis. Well, here is my clarification.

Who is the "you" in that statement?
If you includes everyone then austerity won't help. If, on the other hand, "you" only refers to government then austerity may help.

What do you do when you find yourself in a deep hole?
Frankly, tell me what would you do? Would you say starve yourself that you may become lighter and thus be easy to pull out by some onlooker or, for that matter, rise to top? Or would you gain strength and carve out steps on the side of the hole and try to climb up? I would definitely do the latter. But it involves digging. But I cannot be expected to dig to make the hole deeper.

In other words, we need to dig, just not deeper. We need stimulus. But one that can create competence and help build a path out of this mess. Thus it becomes very critical for government to choose the projects rightly - something not many governments are good at. 

Big government vs small governments
Just remember, governments must get bigger when everyone else is getting smaller and vice versa.