On Tuesday, Brandon and Alex asked the class whether a smaller government (lower taxes and spending) would be a good thing. Overall, I think it is where we are headed. Timing is everything. It is easier to make these kinds of changes when the economy is improving. We see that austerity in Europe is having terrible consequences because it is a contractionary fiscal policy at work. These photos were taken of yesterday's riots in Greece and Spain. (see here)
Unemployment, particularly youth unemployment, in both countries is at Great Depression levels. GDP is in freefall.
The consequences of the action taken in both Spain and Greece are quite alarming for the overall world economy and the United States. By attempting to reduce the deficit through cutting spending, they have in turn damaged their economy even more. I feel that the U.S. needs to look at the results of these actions that were taken by the struggling countries in Europe. Hopefully the United States can soon implement a plan that avoids these kind of results, but still helps our deficit.
ReplyDeleteIn places like Spain and Greece, this may not be the best time to engage in contractionary fiscal policy. As we can see by the protester, the people are looking for assistance for their government at this time, especially since unemployment is so low. If they can afford to, Greece and Spain should reconsider their austerity measures and use money being given to them by the Eurozone to help stabilize their economy. If possible they could increase government spending in the job market, but at the same time these protester and everyone in general will need to realize that with higher government expenditures come higher taxes. If I were living in Spain or Greece today, I would accept higher taxes as a trade-off to economic stimulation.
ReplyDeleteI think this all needs to be taken with a grain of salt, because obviously we do not want to duplicate this situation here in the United States. However, it is also important to note that if the government were to lessen its role in the economy, this policy must be coupled with increased monitoring of the market. The government would not be able to simply reduce its role and leave the market to fend for itself. As we talked about, this is one of the trade-offs involved with a smaller government. Therefore, my hope would be that even if the United States decided to move forward with a policy like this, they would apply the proper monitoring systems necessary to prevent social backlash, like the type seen in Europe, from happening.
ReplyDeleteThe front page of the Wall Street Journal had a picture on it of a woman shielding herself from a glass bottle breaking right next to her head. The bottle was thrown against a wall in protest in one of the Spanish riots. The WSJ article goes on to say that in hopes of gaining support from Spain's wealthiest region the leader of Catalonia "will call early elections there on Nov. 25". Observers have stated that they think this will add strength to the autonomous bid for European support. I do think that the Eurozone should help Spain with its ongoing struggles that are a result of bank problems and not only supply bailout funds for future bank problems.
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