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Related: Editorials & Other Articles, Issue Forums, Alliance Forums, Region ForumsThe latest sign that Europe’s plan to cut debt by cutting spending just isn’t working
By Matt Phillips
Well say it again. If the goal of todays European powers is to reduce the debt loads of the troubled countries that set off the European debt crisis over the last three years, it just isnt working.
The latest official quarterly debt-to-GDP numbers couldnt be any clearer.
Italys debt-to-GDP ratio hit 130% during the first quarter of 2013, a new record. Irelands continued to escalate, touching 125% at the end of March. Greece remains a basket case. Even after having defaulted on its debt twice over the last few yearswhich sharply cut the debt outstandingit posted the highest overall debt-to-GDP ratio, 160%. But it also posted the highest quarter-over-quarter rise in the measure. Look for yourself.
The situation in Europe is an example of what British economist John Maynard Keynes called the paradox of thrift. While it is considered prudent for heavily indebted individuals and families to cut down on spending, the same process isnt always wise for entire economies. Thats because unlike with an individual or family, in an economy spending on consumption and investment is needed to spur growth. One persons spending becomes another persons income. And if everyone tries to cut spending and boost savings at once, it means that the economy as a whole slows.
The result is lower tax revenues, higher spending on social welfare programs, and zero progress on cutting debt.
http://qz.com/106635/the-latest-sign-that-europes-plan-to-cut-debt-by-cutting-spending-just-isnt-working/
byeya
(2,842 posts)of Hayak/Friedman/U of Chicago neolibs have been put to work, they have failed. If you're wedded to capitalism, Keynes keeps the economies running fairly well. The alternative, now so well.
LisaLynne
(14,554 posts)would not really apply at the national level.