Tag Archives: Government budget deficit

The reversed psychology of public debt and austerity

Austerity programs have failed consistently during history yet we are using them as an argument to “fix” our crisis. One may argue that austerity shrinks the economy and therefore debt to GDP is even more difficult to reduce if GDP is falling. This becomes more and more clear as we look at the estimates for public debt of some of the austerity countries. Here are some figures published by CEEMEA in their latest Global Business Outlook:

The idea behind austerity is that reduced budget deficit levels will “instill confidence” into the markets but it seems that by undermining growth and destroying consumer confidence it achieves the exact opposite.