Thursday, May 09, 2013

Fallow on austerity

Writing the the Herald, Brian Fallow questions the government's push for austerity:

As we await another miserly Budget from Bill English we are entitled to wonder whether the Government is overdoing the fiscal discipline.

Has its aversion to debt changed from prudent caution into a kind of irrational phobia?

We have entered a phase where fiscal policy (the net effect of taxation and government spending) is contractionary.

It is reducing demand in the economy and acting as a drag on growth, at a time when unemployment is stubbornly high - around 3 percentage points or 60,000 people worse than in the years before the recession.

And this is why the economy is failing and economic statistics continuously fall below Treasury projections: because the government is strangling the economy. Its public justification for doing so - fear of higher interest rates - is a myth; there are no "bond vigilantes" punishing governments who borrow when interest rates are low. But they persist in inflicting their zombie economics on us, because anything else would involve admitting they were wrong.

The problem is that as long as there is austerity, there will be no growth and no jobs. If we want those things, we need to change fiscal policy, which means changing the government.