• Austerity vs. Deficit Spending - A Catch -22

    A vivid debate is currently going between two groups of economists, politicians and financial analysts. One camp argues that government deficits have to be kept within reasonable limits or avoided altogether, because fast-increasing public debt will become unmanageable in the foreseeable future. We wholeheartedly agree.

    The other group advocates a continuation of stimulus spending and credit driven investment by governments. In a New York Times op-ed piece published on June 17, 2010, Paul Krugman explained why slamming the brakes on government spending would throw us back into recession. On June 28, he doubled up, now arguing that with reduced government stimulus, we're headed straight for a new Depression. We fully agree with his assessment.

    How come IIER is simultaneously able to agree with two camps which are ready to turn to fists when making their argument? It's quite simple: both have a point. But equally, both have no real answer.

    (Jun 18, 2010)
  • Dear candidate - if you want my vote...

    One of the most surprising things we encounter these days is that no country, no established economic research institute, and no international organization (such as the IMF) publicly discusses scenarios that don't plan for a return to stable economic (GDP) growth. Even Greece's government, after 2012, expects growth, which would allow the country to slowly reduce its staggering debt. Equally, the U.S. government forecasts annual average (real) growth rates of 4.4% for the years 2012-2014, and 2.4% thereafter until 2020. And so it continues, no matter where we look.

    What we find most intriguing, but equally most worrying, is that in all the economic projections we have seen lately, decline or zero growth aren't even mentioned as a faint possibility. We can only speculate why that is the case, but we see significant evidence that only limited effort - if any - is put into understanding the possible consequences and required mitigation strategies. We are highly alarmed about the fact that so few people seem to be ready to think the not-so-unthinkable.

    (Jun 17, 2010)