David McWilliams Explains Why Austerity Is Doomed In Europe

A very interesting video by an Irish economist explaining how the current reduce government spending (“austerity”) approach to the Eurozone debt and currency crisis is doomed to fail. It is doomed because cutting government spending in a recession only makes the recession worse, which in turn, reduces tax collections which then makes the government deficits worse not better.  But not only is the austerity approach all wrong to solving the debt crisis, it carries very significant risk of social upheaval.  (hat tip to Philip Pilkington and New Economic Perspectives).

Now I’ll offer one pre-emptive comment.  Critics of the arguments McWilliams makes often claim that either government spending isn’t really effective, that somehow only private investment spending will stimulate an economy.  Or, the critics claim that any resources the government puts into use through spending actually detract from the economy by denying those resources to some supposedly better, privately chosen use. Both of these criticism fail.  We are clearly discussing a situation in which there are excess, unused economic resources in the economy.  In plain language:  there’s high unemployment and people are out of work.  The criticisms are all based on an idea called “crowding out”.  For crowding out to occur, the economy must be at full employment – the opposite of being in a recession.

2 thoughts on “David McWilliams Explains Why Austerity Is Doomed In Europe

  1. Great animation; I would like to see more of this and similar audio/visual approaches employed in explaining the nature of economic policy to the non-economist public.

  2. Methinks the problem with Keynes economic philosophy, as practiced today, is the fundamental belief that you NEVER have to face your debt.

    That just isn’t true. Today’s world economy going down the tubes is proof of that.

    You can only deny debt as a problem so long… and then it finally gets you!

Comments are closed.