We found this article recently, and with the permission of Project Syndicate, we recommend it to your attention (Project Syndicate is a website that offers thoughtful articles about economics and other topics in public debate). It addresses an important issue by one of the leading authorities on the matter. It manages to avoid partisanship in what is generally a very partisan subject. We’ve been asked to include only the first two paragraphs here along with a link to the full article. We think you’ll find the full article to offer useful perspective in a concise format:
Kenneth Rogoff
Kenneth Rogoff, Professor of Economics at Harvard University and recipient of the 2011 Deutsche Bank Prize in Financial Economics, was the chief economist at the International Monetary Fund from 2001 to 2003. He is one of the world’s premier international economists, with influential publications spanning the fields of global finance, monetary and fiscal policy, and economic development.
Austerity and Debt Realism
01 June 2012
CAMBRIDGE – Many, if not all, of the world’s most pressing macroeconomic problems relate to the massive overhang of all forms of debt. In Europe, a toxic combination of public, bank, and external debt in the periphery threatens to unhinge the eurozone. Across the Atlantic, a standoff between the Democrats, the Tea Party, and old-school Republicans has produced extraordinary uncertainty about how the United States will close its 8%-of-GDP government deficit over the long term. Japan, meanwhile is running a 10%-of-GDP budget deficit, even as growing cohorts of new retirees turn from buying Japanese bonds to selling them.
Aside from wringing their hands, what should governments be doing? One extreme is the simplistic Keynesian remedy that assumes that government deficits don’t matter when the economy is in deep recession; indeed, the bigger the better. At the opposite extreme are the debt-ceiling absolutists who want governments to start balancing their budgets tomorrow (if not yesterday). Both are dangerously facile...
Link to entire article: http://www.project-syndicate.org/print/austerity-and-debt-realism