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De Omnibus Dubitandum - Lux Veritas

Tuesday, June 11, 2013

Is “Austerity” Responsible for the Crisis in Europe?

Mises Daily: Tuesday, June 11, 2013 by Martin Masse

Most European economies have been in recession, or close to it, since the beginning of 2012. Unemployment rates are reaching record highs. Meanwhile, a debate has been raging about the deleterious effects of “austerity” measures. Various heads of government, finance ministers, and European Union officials have declared that austerity has gone too far and is preventing a recovery.

Keynesian economists like Paul Krugman are seeing this as unassailable proof that stimulus policies adopted when the financial crisis started in 2008-09 should never have been reversed and replaced by austerity measures, notwithstanding the explosion of public debt that they entailed.

In the Keynesian view, when idle resources are left unused by the private sector, governments should put them to work. They should stop worrying about budget deficits and start spending again.

Whereas Keynesians and the rest of the economics profession see downturns as unexpected and disastrous events to be prevented, Austrian School economists explain them as the inevitable result of an earlier unsustainable boom provoked by excessive credit expansion and interventionist government policies.
For Austrians, the recession is actually a cure to get rid of distortions that have accumulated during the boom. Resources being wasted in unproductive uses have to be freed and moved to sectors where there is real and sustainable demand. Unfortunately, this takes time…….To Read More…. 

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