There are two opposite theories about how to get out of the economic doldrums we find ourselves in: Austerity and Stimulus. The debate is not just within the U.S.
The Austerity solution is favored by conservatives, who argue that we should take our lumps today in hopes of a better future tomorrow. This position focuses on spending less and cutting the debt, on the theory that the debt overhang inhibits future economic growth with risks of default, inflation or higher taxes. The Austerity solution is supposedly hardest on working people who may lose jobs and young people who can’t find them, and better for people who have accumulated savings and wealth.
The Stimulus solution is favored by liberals, who argue that economic activity creates jobs, even if debt results from the spending. Proponents of Stimulus argue that if we stop spending to cut the debt, we’ll enter a downward spiral where economic activity is very low. The Stimulus solution is supposedly hardest on people who have accumulated wealth already, since it adds to the debt and may portend future default or inflation or higher taxes, but better in the near term for people looking for jobs and people working in the public sector.
Because our political discourse in this country is so dysfunctional, it’s virtually impossible to get a balanced perspective on these two arguments. Economists are as polarized as anybody else and it’s hard to find people in the middle who can analyze these positions fairly. Apparently both Austerity and Stimulus have a role to play in trying to resolve our current financial woes.
Most experts agree that the slow economy is not going away anytime soon. These cycles develop over decades, through many different administrations, and resolve equally slowly. It’s unlikely that next fall’s election will make a difference one way or the other. Having a grown-up discussion among ourselves, however, would be a step in the right direction.
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