May advocate "growth with austerity",
An odd formulation
Of vague calculation,
But perfect political clarity.
European growth vs. fiscal austerity? "We need both," says ECB Executive Board member Jörg Asmussen. Mr. Asmussen, who recently joined the European Central Bank from the German finance ministry, maintained in a speech in Berlin that "the fiscal compact can be complemented by growth-enhancing measures." However, it is clear that, as a good German, he advocates fealty to fiscal discipline first and foremost; growth measures "make sense as a supplement, but the fiscal compact cannot be renegotiated or softened." Most likely Mr. Asmussen is just doing his bit to calm the political waters that have recently swept away such austerity advocates as Nicholas Sarkozy, as well as his own Christian Democrats in a recent regional election. After all, even an elite central banker would have trouble explaining how a government could simultaneously grow the economy while shrinking itself.
Were I Mr. Asmussen, I would probably begin my explanation by challenging the postulate that government spending is always stimulative. I would question that funds taken from individuals and then spent by a government, are somehow more stimulative than those individuals directly spending those funds on goods and services themselves. It seems that a step in the "Multiplier Effect" is skipped in the taxation transaction.
ReplyDeleteOf course, this does not apply to a government spending borrowed money, in which the government is making the bet that the multiplying effect of spending now, is greater than the interest payments later.