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The case against austerity

Monday, January 02, 2012 - 02:53

Reuters columnist David Cay Johnston makes a compelling argument against austerity budgets during a global downturn and offers suggestions on what governments should do instead. Hear his points within!

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Because the whole world is caught in economic doldrums we're hearing all over that we need austerity budgets. Well, that's madness! An austerity budget means cutting the amount of government spending and that in turn means firing people. Police officers, firefighters, school teachers, letter carriers, biologists. And what's austerity budget mean for your family? Well it means your children will -- classrooms that are going to have more students in them. And older books and fewer supplies. It means that you're going to wait longer for the fire department to come if your next door neighbor's house catches fire. Or if you need emergency medical technicians because somebody's having a heart attack. It means that all the other government services that make. Business possible that grow the economy are going to be split so that we can reduce temporarily government spending. So why are we talking about austerity budgets. Well, tax revenues are down and therefore we're hearing the claim that government spending needs to go down. In the long run, governments need to levy as much as they spend. But governments aren't like households. There's a simple economic rule to keep in mind. When you look at the whole world spending equals income. How much you spend determines other people's income, how much they spend determines your income. If we reduce spending, we are reducing incomes. But in the short run, when demand collapses, which is the worldwide problem right now. Governments need to increase spending. They shouldn't just be hiring people to rake leaves in the park, but investing in infrastructure we need to be spending on things that add value. Particularly things in America like roads and bridges and dams and water mains which we have been using up and not replacing. If we use up our infrastructure and we don't replace it we will be poorer in the future not richer. When you have an austerity budget it means less money is flowing into the economy and it's simply worsened the problem we have to. If you own a business and I own a business, you should be really worried about austerity budgets because it means you're going to have fewer customers with less money to spam. If you're one of the billionaires who's got access to the world leaders gathered at Davos, here's a suggestion on how to get even richer: encourage more government spending. The sooner we get out of the economic doldrums, the sooner your fortune will start growing again.

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The case against austerity

Monday, January 02, 2012 - 02:53