Austerity — “But?” Or Maybe, “Of Course!”

Dave Johnson

I noticed something interesting in this USA Today report, Moody’s cuts U.K.’s AAA credit rating,

Credit ratings agency Moody’s Investors Service has downgraded Britain’s government bond rating one notch from the top AAA to AA1, citing weaknesses in the economy’s medium-term outlook.

Moody’s said “subdued” growth prospects and a “high and rising debt burden” are weighing on the British economy.

Here is the key paragraph: (emphasis added, for emphasis)

The British government is in the midst of a program of spending cuts designed to reduce the nation’s hefty deficit, but the austerity program has failed to stimulate economic growth.

“But” the austerity has failed to stimulate economic growth? “BUT?” Shouldn’t that read “OF COURSE?”

Austerity is CONTRACTIONARY! And, as Atrios says, “Contractionary policy is contractionary.” That means that it cuts economic growth. Economics 101: austerity cuts economic growth! I mean, DUH! You cut back on the things that underpin an economy and the economy shrinks.

Seriously, is there any example, ever, anywhere of austerity causing an economy to grow? (Hint: NO!)

But?

Hey here is an idea. Instead of creating money and giving it to banks and enriching bankers, as the Fed is doing, how about creating money and using it to pay for repairing the country’s infrastructure which means a lot of people get hired!

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