The First World’s Fiscal Follies
The world’s advanced economies remain divided over whether to strengthen budget balances in the short term or to use fiscal policy to promote recovery. But the debate is akin to asking whether it is better for a driver to turn left or right: depending on where the car is, either choice might be appropriate.
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CAMBRIDGE – The world’s advanced economies remain divided over whether to strengthen budget balances in the short term or to use fiscal policy to promote recovery. Those worried about the short-run contractionary effects on the economy call the first option “austerity”; those concerned about long-term sustainability and moral hazard call it “discipline.”