Sat, Jul
3
2010

Contemplating Austerity

Sat, Jul 3, 2010

Greg Bester makes an interesting point. Now, we all know that our deficits are huge and, here in Canada and the United States, it seems it’s hard to find evidence that the massive amount of money we’re spending on stimulus programs have done anything to actually create jobs. And as our debt fears mount, I can understand the growing desire to rein things in. Sure, if a venture we’ve tried hasn’t clearly worked, it’s time to change course, right?

But Ireland has taken a different course, cutting spending and reining in its deficit without spending stimulus money. Theoretically, it should be the model we strive for, right? So, how is it doing?

Rather than being rewarded for its actions, though, Ireland is being penalized. Its downturn has certainly been sharper than if the government had spent more to keep people working. Lacking stimulus money, the Irish economy shrank 7.1 percent last year and remains in recession.

Hmm…

Despite its strenuous efforts, Ireland has been thrust into the same ignominious category as Portugal, Italy, Greece and Spain. It now pays a hefty three percentage points more than Germany on its benchmark bonds, in part because investors fear that the austerity program, by retarding growth and so far failing to reduce borrowing, will make it harder for Dublin to pay its bills rather than easier.

(link)

Still sure our stimulus spending has had no effect?

Well, yes, I can hear you already. How do I know that if Ireland hadn’t enacted these austerity measures, they’d be better off? But given that I hear people saying that because the American and Canadian stimulus packages haven’t magically bought us back to prosperity, the spending is so obviously useless and wasted, isn’t it fair for me to look to Ireland, which have tried the opposite tack, encountered roughly the same result, if not worse, and draw my own conclusions?

Personally, I never thought that we could ever spend ourselves out of a recession. But maybe, just maybe, it’s possible to spend enough to keep us from going deeper into one.


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