GDPR Notice

GDPR Notice:
Please note that Google, Blogger, Adsense and other Google services may be using cookies and doing whatever they do. Please take notice that by using this blog you give your consent to those activities.

Friday, February 13, 2015

Austerity V/s Stimulus, Government Spending and Greece

Sometimes it is worth repeating something that is actually right. Let me say this again:

Stimulus works best when you need to push-start the demand engine. Note that it implies that stimulus won't do the work of engine - it will only push-start it. The engine must be in working condition otherwise. 


Austerity works best when Government borrowing is crowding out private investment. Usually Government is borrowing too much because it is spending too much. New investment is required to put a new engine in place.


In Greece's case - their engine is not working and their Government is spending a bit more than required. A combination is required when economy stalls - i.e. Government must reallocate/realign the spending targeting it into essential things. It also needs to increase spending once the new "engines" are set up. 

In a nutshell - neither Austerity nor stimulus alone will work in Greece's case. A combination of sane reforms and practical stimulus is required. Till such time...






No comments:

Post a Comment

Note: only a member of this blog may post a comment.