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?

Keynes vs. Alesina. Alesina Who? - BusinessWeek

A lovely debate over what excites the market's "animal spirits" more, whether spending or spending cuts, is taking place.

The US seems to remain in favor of increased spending in order to prop up its economy and strengthen job growth. Europe and other G20 nations are persuaded that austerity is more fitting. The policy makers on either side have their own set of economists arguing in favour of their approach. On the pro-stimulus side, are the new Keynesians. On the anti-stimulus end are those who support the work of Harvard economist Alesina.

The proponents and their key arguments are summarised in this BusinessWeek article, entitled Keynes vs. Alesina. Alesina Who?.

Best Economic Ideas

• Originally posted by Emmanuel Santos on January 7, 2010

From The New Republic, a list of best economic ideas of the past year compiled in The Stash. The article includes everything from high-end prostitutes and the "economics of happiness", to advancements in fiscal and monetary policy.