The latest Bloomberg Businessweek reports with satisfaction that government spending in the United States and elsewhere is set to emerge from a period of harmful austerity.
The age of austerity may be nearing an end. After three years of belt-tightening, governments from Washington to Madrid are easing up. That may be good news because one of the forces tempering recoveries in the U.S. and Europe is what economists call the fiscal drag. The term refers to the restraining effect budget chopping has on economic growth. The bigger it is, the more businesses and households rein in their own spending in response to less government hiring or curtailed public investment on things such as public works and education programs. “The softening of the fiscal drag is likely to play an important role in supporting a pickup in global growth,” says Jose Ursua, an economist at Goldman Sachs (GS).
Someone ought to ask writer Simon Kennedy the following questions: 1. What austerity? 2. If government overspending causes so many problems for the economy, why would we want to turn the spigot on again?