Could Austerity Be the Key to Growth?

David Brooks takes his cue from developments in Germany and Great Britain to highlight the merits of austerity which in his terms is the "adult" way of managing the economy. He draws most of his insights from a blog called e21 which posted this editorial on the German economic recovery. Some analysts warn that the below-trend growth that is expected from the US in the coming years is an even worse outcome than a double dip recession that lasts for a few quarters followed by a return to normal growth immediately after. The reason for such stagnancy is the expectation of firms and households that government indebtedness will affect the hip pocket in the coming years. Although the US in all likelihood will avoid a double dip because of its stimulus, is now the time to be thinking about austerity given the seeming ineffectual nature of fiscal spending?

Overconfidence Explains Failure Rates

Thanks to the Nudge blog, I found two interesting reads. They both deal with overconfidence. Overconfidence in our ability to learn as consumers for instance leads us to buy stuff thinking we can easily pick things up, like playing a new sport or a do-it-yourself project. This also explains the high drop out or non-completion rates observed in technical training. Overconfidence also leads entrepreneurs to start new ventures that have a low probability of success.

How would better policies inform the decisions of such actors to produce better outcomes, I wonder.

Not Monty Python

First Obama, then Cameron found a way of absorbing the new theory of Nudge into its agenda. When will libertarian paternalism make its way to Australia?