Austeriansis is the title of chapter eleven of the book End This Depression Now! written by the economist and Nobel Laureate Paul Krugman. In this chapter Paul Krugman analyzes the failing European respond to the European Financial Crisis. The lesson from the American Great Depression was clear: in times of depression states must act in order to implement expansionary fiscal and monetary policy. When the cash flow slows, states must act in order to restart the virtuous circle. Unfortunately, as Krugman describes it, European politicians decided to throw out the conventional textbooks and apply the Theory of Expansionary Austerity. A Theory that while the private market was slowing down and the unemployment rate was increasingly raising, lead
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Although, different economists tried to worry the EU on the inefficacy of the theory, politicians decided to hear only the Austerians. Pro Expansionary Austerity economist supported their ideas with different historical examples that today, after a deep analysis, have been found partially incorrect or could not be applied on the European case. For example, Canada in the 1990s through a series of austerity measures was able to move from a budget deficit to a budget surplus. Unfortunately, Economist did not take into account the importance of third factors. In fact, Canada in the 1990s experienced a drastic fall in its interest rates, and it sharply increased its exports. Especially, Canada increased the export to the US, Canada’s first exporting country, which was experiencing an economic boom. In addition, the IMF has studied that on the contrary to the idea supported by the Austerians, fiscal austerity measures depress the economy rather than expanding …show more content…
The Theory of Expansionary Austerity was adopted to boost the recovery, yet it made the situation worse. No one will ever admit that it was only a mistake. As a student asked in class, why is the EU not moving out of the Austerity? The answer is not easy but it leaves a lot of space for speculation. I personally think that the EU will gradually get rid of some of the austerity measures (not the famous law of 3%). However, the change cannot be too drastic otherwise it will be an admission of the total failure of the European Economic Policy. If the EU admits that the policy was a failure and that hundred of people killed themselves, millions of people lost their jobs, and the overall European standards of leaving decreased only because someone did a miscalculation; someone will have to pay, and who is willing to be blamed for such a
Although, different economists tried to worry the EU on the inefficacy of the theory, politicians decided to hear only the Austerians. Pro Expansionary Austerity economist supported their ideas with different historical examples that today, after a deep analysis, have been found partially incorrect or could not be applied on the European case. For example, Canada in the 1990s through a series of austerity measures was able to move from a budget deficit to a budget surplus. Unfortunately, Economist did not take into account the importance of third factors. In fact, Canada in the 1990s experienced a drastic fall in its interest rates, and it sharply increased its exports. Especially, Canada increased the export to the US, Canada’s first exporting country, which was experiencing an economic boom. In addition, the IMF has studied that on the contrary to the idea supported by the Austerians, fiscal austerity measures depress the economy rather than expanding …show more content…
The Theory of Expansionary Austerity was adopted to boost the recovery, yet it made the situation worse. No one will ever admit that it was only a mistake. As a student asked in class, why is the EU not moving out of the Austerity? The answer is not easy but it leaves a lot of space for speculation. I personally think that the EU will gradually get rid of some of the austerity measures (not the famous law of 3%). However, the change cannot be too drastic otherwise it will be an admission of the total failure of the European Economic Policy. If the EU admits that the policy was a failure and that hundred of people killed themselves, millions of people lost their jobs, and the overall European standards of leaving decreased only because someone did a miscalculation; someone will have to pay, and who is willing to be blamed for such a