Investment Chart Kondratiev Wave

Investment Chart Kondratiev Wave

Thursday, 26 April 2012

Government policy: first big austerity then less: why are most countries doing the opposite and lose?

The change in austerity determines how big the influence of lower government spending/ higher taxes is on growth. So it is a well accepted theory that you have to take as soon as possible the maximum pain that is necessary. In the years after that you can increase austerity further but less fast. Then you get more economic growth. First the acid then the sweet was the victim of wise politicians.

That is how you win elections, see Nixon who was a master how to play the election cycle.

Still most countries in Europe are increasing the austerity every year more. That is a depressing strategy. In 2013 austerity goes up in several countries like the Netherlands, so the Netherlands will lag European growth even more than they do already. Confidence cannot recover with this kind of policy. Some countries have done better like Ireland (applause) and Germany (but Germany didn’t need to do much, so that was easy). There is hope the pace of austerity next year can diminish in Spain, Italy, Ireland. Hollande will maybe prevent the necessary big austerity step for France, that could create all kind of problems.

In the US you will get the fiscal cliff of 2013. The next president should be wise (like Nixon c.s.) and repair no more than half of this cliff, otherwise economic growth will remain low in the US for a long time. He also should continue infrastructure investing and do the austerity elsewhere (necessary but difficult). Still the consensus says: this time is different, in the year after the election we will not do too much fiscal austerity. Would they be as stupid in the US as in Europe?

No comments:

Post a Comment