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Home Publications Blogs Beat the Press There Are at Least Two Schools of Thought About How to Stimulate Growth, But Only One Appears in the NYT

There Are at Least Two Schools of Thought About How to Stimulate Growth, But Only One Appears in the NYT

Friday, 10 December 2010 06:30

The statement about "at least two schools" is a quote in an NYT article from Germany's Foreign Minister Guido Westerwelle. However, one will look in vein in this article for anything other than the view from Mr. Westerwelle that:

"People used to think that it would be the next generation that would some day have to deal with the issue of public debts. ... And now everybody is surprised that it doesn’t take that long, that it hits us now in the shape of the ever increasing price of credits."

One alternative view is that unnecessarily tight monetary policy in the wake of the collapse of housing bubbles across Europe and the United States is forcing unnecessary austerity on Ireland, Spain, and other European countries. Proponents of this position point out that these countries are not suffering from a shortage of labor and capital, but rather a lack of demand.

This means that if the European Central Bank and/or national governments stimulated these economies by creating additional demand, this demand could easily be met without inflation. From this perspective, the imposition of austerity is simply pointless pain. Furthermore, the people who bear the brunt of the suffering are ordinary workers, not the bankers whose greed fueled the bubbles or the incompetent central bankers and other policymakers who allowed the housing bubbles to grow to such dangerous levels.

Comments (9)Add Comment
Austerians Don't Do Shortages: They Do Efficiency
written by izzatzo, December 10, 2010 6:13
Proponents of this position point out that these countries are not suffering from a shortage of labor and capital, but rather a lack of demand.

That one's below the belt Mr Whose Your Nanny. Any Austerian knows that just because efficiency is improved on the supply side to make more output with less units of input, that doesn't mean less total inputs are employed in the aggregate to produce the same level of output.

If it did, that would result in a surplus - not shortage - of unemployed workers and a deep recession wouldn't it.

Get a grip Mr Nanny. Austerians don't do shortages. They do efficiency. They're always on the production possibility curve, never above it with shortages and never below it with surplus unemployed resources.

Stupid liberals.
written by skeptonomist, December 10, 2010 7:55
Germans have been relatively successful in recent history at keeping their own fiscal house in order and their advice on avoiding debt in the first place is probably worth listening to. But when occasion demanded, as after WW I, they have also resorted to drastic measures - hyperinflation - to escape a debt burden.

PS the captcha is getting ridiculous - I can't type upside down.
joe citizen
written by wil Cummings, December 10, 2010 9:29
Same old same old. Prime the pump so that jobs making things people do not need will be bought by people who cannot afford them and add to
the destruction of the planet.

Where is an economic model based on sustasinability? Step up Mr. Baker.
NYT a News Cartel
written by Union Member, December 10, 2010 9:31
Understandibly angry students try to hold Prince Charles accountable for the money markets highly leveraged gambling debts. Perhaps it is due to NYT's reporting and opinion that the students misunderstand the issues so.
Perhaps the NYT should be inde bted more to Carlos Slim.
written by Joseph Kennedy, December 10, 2010 10:06
After decades being derided as an old europe moribund socialist welfare state, Mr Westerwelle appears to be enjoying his country's moment in the sun as a poster boy of free market fiscal conservatism.

Don't expect it to last mein Herr, just ask the Irish.
The median voter is very confused about the monetary system
written by jwo, December 10, 2010 10:57
The median voter is very confused about the monetary system. They do not know the difference between fiscal and monetary policy at all. And the politicians are not about to educate them!
“There is no alternative."
written by Scott ffolliott, December 10, 2010 3:54
Thatcher’s children have only one argument: “There is no alternative."

That is Obama’s argument.
Agony and Ecstasy
written by JHM , December 11, 2010 9:22
"Pain" is not at all "pointless" for any inflicter who likes to watch his inflictees suffer as they deserve to.

Dismal Scientists seem to have a remarkable amount of trouble with points of everyday psychology and morals like that one. Yet Balance and Fairness DO obtain at last, for no man on the street and behind a wheel has ever yet run over "a rationally expectant pedestrian."

Happy days.

"In vein"
written by DGM, December 16, 2010 11:42
You might look in vein, but that would probably be in vain, unless you were searching for oxygen-depleted blood...

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.