A Greek Tragedy for Anti-Keynsians
It’s common for Austrians and pro-freemarketers to lambast even light Keynesians about their conclusions. We hear things such as “you just don’t understand” economics or markets constantly. For better or worse, Wall Street is overwhelmingly pro- free market and anti-Keynesian. As we often point out, people have a fantastic ability to fool themselves. Here is a great example.
You can’t pick up a paper or read anything financially related without some commentary on the Greek debt bomb going off. European officials are dealing with their own moral hazards and tough choices to which there on no easy answers. The one common theme from all commentators is that Greece must adopt tough “austerity measures” in order to service its debts. That is, cut spending in order to pay the debt. If the Greeks summon the political will to cut their budget, commentators argue that it will crush their economy. A sampling of typical comments I’ve seen this week:
“The crisis will come back unless the Greeks willingly go into their own Great Depression by slashing their spending”
“Greece and other countries now face falling private-sector incomes —the direct and immediate result of higher taxes on businesses and households and lower government expenditures.”
and even from the very Austrian The Economist:
The Greek government has somehow to keep its economy on an even keel while pushing through a huge fiscal tightening. Countries that seek IMF help generally have to endure brutal cuts in public spending, which deepen recessions.
Which causes me to wonder, if large decreases in government spending lead to downturns or deepening of downturns, then why isn’t the converse true? It would seem that if the subtraction of government spending results in falling GDP, then increasing government spending would result in increasing economic activity. Sadly this little truth is wholly ignored by the hypocritical economists with an ideology to grind.
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