August 15, 2013
Readers of the Financial Times will undoubtedly be looking for this headline in future editions after seeing that:
“Berlin and Brussels credit fiscal discipline and reform for euro zone recovery.”
As predicted by non-members of the flat earth society everywhere, the “fiscal discipline” pushed by Berlin and Brussels has led to severe recessions across much of Europe.The story is very simple. In the middle of a severe downturn, cutting back government spending and/or raising taxes lowers demand. There is no reason to think that firms will invest more or consumers will buy more simply because the government is spending less. Recent research from the IMF has confirmed this to be the case.
But just as any non-fatal beating eventually ends, the decline in GDP due to government cutbacks may finally have reached an endpoint.
Apparently in Berlin and Brussels they consider it cause for celebration that their policies did not lead to a permanently declining economy. This is known as the soft bigotry of incredibly low expectations.
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