Martin Wolf on the Austerity Debate

Very interesting debate in the FT on the new Austrity arguments. Martin Wolf sets up the debate:

Over this week some of the world’s leading policymakers and economists will be addressing in the FT the all-consuming contemporary economic debate: austerity versus stimulus. The writers, including Larry Summers, Jean-Claude Trichet and the FT’s Martin Wolf will argue whether cutting now risks suffocating the fragile recovery of the global economy . . ..

Readers must make up their own minds on the merits of the arguments this week. My own strong sympathies are with the postponers. But of one thing everybody agrees: this debate matters. We cannot be sure who is right. But we can be sure that if policy-makers get it wrong, the results may well be dire.

-Martin Wolf, Why the battle is joined over tightening

Lawrence Summers, director of President Barack Obama’s National Economic Council:

“Economic commentators are mired in an unhelpful dialectic between “jobs” and “deficits” that, despite its apparent simplicity, has obscured rather than clarified the policy choices ahead in the US, Europe and elsewhere.”

-Lawrence Summers, America’s sensible stance on the recovery

Niall Ferguson, Lawrence A Tisch professor of history at Harvard, and FT contributing editor

It was said of the Bourbons that they forgot nothing and learned nothing. The same could easily be said of some of today’s latter-day Keynesians. They cannot and never will forget the policy errors made in the US in the 1930s. But they appear to have learned nothing from all that has happened in economic theory since the publication of their bible, John Maynard Keynes’s The General Theory of Employment, Interest and Money, in 1936.

In its caricature form, the debate goes like this. The Keynesians, haunted by the spectre of Herbert Hoover, warn that the US in still teetering on the brink of another Depression. Nothing is more likely to bring this about, they argue, than a premature tightening of fiscal policy. This was the mistake Franklin Roosevelt made after the 1936 election. Instead, we need further fiscal stimulus.

-Niall Ferguson, Today’s Keynesians have learnt nothing

Next in the series: Brad DeLong . .


Why the battle is joined over tightening
Martin Wolf
FT, July 18 2010 19:13

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