Has Austerity Been Vindicated?
A correlation between fiscal retrenchment and economic growth tells us nothing about the underlying relationship between the two. This should be borne in mind in light of new research suggesting that austerity may well be the right policy in a recession.
https://prosyn.org/hhhaIyQ
LONDON – Harvard University Professor Alberto Alesina has returned to the debate on budget deficits, austerity, and growth. Back in 2010, Alesina told European finance ministers that “many even sharp reductions of budget deficits have been accompanied and immediately followed by sustained growth rather than recessions even in the very short run” (my italics). Now, with fellow economists Carlo Favero and Francesco Giavazzi, Alesina has written a new book entitled Austerity: When It Works and When It Doesn’t, which recently received a favorable review from his Harvard colleague Kenneth Rogoff.