Saturday, February 5, 2011

Growth through austerity!??

Is the growth possible through austerity? Post-crisis the word 'austerity' has become popular. But the question of whether it helps the countries to come out of recession? Does it help to reduce fiscal deficit? It certainly seems rational that fiscal deficit can potentially be reduced if the democratic government keeps a check on wasteful expenses. But reducing consumption will not contribute to the growth of economies..... moreover it leads to contraction. Here i mean consumption not just by government but also the citizens. It will potentially reduce the aggregate demand causing further deceleration! UK's case is the ready example. UK embraced the austerity drive to stimulate the growth process and reduce the fiscal deficit............. it scored very poorly in the growth front which is crucial. Though it brought down the fiscal deficit holistically............ but it really caused the further contraction!!

The economist carries an interesting piece. [Link

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