Myths about fiscal austerity: A cut too far? | The Economist

I don't know whether to feel good about this or not.

I had a post last week where I shared my concerns (more eloquently written by Paul Krugman) that global governments were beginning a process of tightening fiscal and monetary policy at a time that the economic recovery is still fragile.

This was the pattern that the Japan followed in the 1990's, and the U.S. in the late 1930's - rather than try to encourage fledgling growth, the government authorities acted too soon, snuffed out the recovery, then had to come to the rescue again.

Not to worry, according to The Economist. Most of the conversations coming from government officials is mostly rhetoric:

Fortunately, however, the G20’s rhetoric is far tougher than the likely reality. Contrary to Mr Krugman’s fears, there is little evidence from actual budget plans that the world’s finance ministers are embarking on an immediate collective austerity drive. American politicians are still debating a second mini-stimulus. Even in Europe, where the focus on deficit reduction is greatest, the impact will in the short term be relatively modest.

But is this good? The Economist continues:

A calm look at the numbers, then, suggests that the odds of a collective G20 blunder towards recovery-wrecking austerity this year are low. The real danger of the current embrace of austerity is not that it is reckless, but that it is thoughtless—missing an opportunity to make the policy changes that will help economies most in the future.

More to think about.

Myths about fiscal austerity: A cut too far? | The Economist