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Back to Austerity?

For every burst of euphoria about the potential of government spending, there is an inevitable reversion to fiscal consolidation and tighter restrictions. If the public is demanding an expansion of the state, the task for policymakers is to determine not how much to spend, but how best to spend it while the opportunity lasts.

PRINCETON – Economic and financial policymaking tends to move like a pendulum. Euphoria about the potential of government action is usually followed by backlash, disillusion, and lowered ambitions. “Can-do” rhetoric gives way to “mustn’t-do” restrictions and rules. That is where many advanced economies are now: After a period of feelgood spending, there is growing pushback against government expansion.

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