Current discussion over raising the debt ceiling is all over the news, and I would probably not be adding much to the discussion if I predicted whether it will or will not be raised. I would be adding an equally marginal account towards the ramifications of the outcome if I tried to do so.
Instead, the point I hope is acknowledged as Congress moves forward (with or without agreed upon legislation), some austerity measures are all but inevitable. We likely face tough economic times ahead because we are at a point in which our borrowing and spending is no longer sustainable. But there are measures we can take to alleviate tough times to come, using sound, long-run policies.
The debate over the type of austerity measures is likely as heated as the debate over the debt ceiling. Generally, there are two camps on this issue: raise taxes (T) (typically on the wealthier among us) or decrease government spending (G).
The idea behind austerity measures is generally to alleviate the deficit when it has become unsustainable. Again, this seems inevitable in our case, either now or in the near future. The argument rests in the discussion of how we ought to minimize the damage in output (Y).
To simplify, the argument is such: austerity measures (whether increasing T or decreasing G) will decrease output (Y), often simplified as gross domestic product. Keynesian economists will shout from the rooftops that austerity measures during tough economic times are disastrous. My advice: do not listen to this intimidation. According to the IMF, in the long run, austerity measures that eliminate waste are beneficial. More importantly, the type of austerity measures taken can yield different results. To briefly summarize, austerity measures that rely on tax increases do more harm to an economy than measures that decrease government spending.Published in