Readers Question: In a non-recession situation, if a government reduces it’s borrowing and thus it’s spending, how can that have a depressing effect on the economy? Wouldn’t that money be either be loaned to someone else or spent to on goods and services by the people who have it? Yes. If an economy is growing …
Readers Question: The government keeps claiming that their harsh (but very necessary) austerity policies are working and that they have reduced the national debt by 24%, yet your graphs seem to totally disprove this claim. If anything, your graphs seem to show that the national debt is continuing to rise quite steeply, despite the government’s …
One feature of the recent crisis has been the degree to which governments underestimated the forecast rise in government borrowing. The IMF produced a report which looked at forecast debt from 2007, and what debt actually was three years later. In ten selected countries, the increase in the gross debt ratio 31.8 2007 forecast for …
Readers Question: If all Greeks native or from abroad (or any other country in debt) bought their own bonds would this make the debt much lower? No, it would not make the debt any lower. But, it would help to finance the government’s deficit. It would make it easier for the government to avoid a …
Readers Question: I am much in favour of governments defaulting on what they owe to private financial institutions (as opposed to other governments). This would be in line with the ideas fuelling the current OCCUPY THE WALL STREET movement. I would very much like someone to comment if this is at all possible and practical. …
Readers Question: Can you Spend Your Way to Full Employment? Full employment implies. An economy without a significant negative output gap. Full employment requires positive economic growth, averaging close to the long run trend rate of economic growth. (in UK long run trend rate = 2.5%) Very low unemployment. Economists would say full employment is …
Can Governments Increase the Rate of Economic Growth? Governments often seek to increase the rate of economic growth. Higher growth rates improve public finances, increase economic welfare and help reduce unemployment. However, it is debatable how much the government can actually increase the rate of economic growth. The greatest potential for increasing economic growth occurs …
I wrote an article in this months (April) edition of Economic Review on the theme of spending cuts. It offers detailed arguments for spending cuts and also the problems of cutting spending in the current economic climate. It was written back in September quite a few months ago. A brief summary of the article. Arguments …