I fear what\’s happening here is that the world is making the 1930s mistake and the ratings agencies are partly responsible for this.
Even though it is clear in Greece, in Ireland, in other countries, in Britain too (that) this austerity isn\’t working, the message is \’Plough on, dig a deeper hole, carry on with an austerity that is failing\’.
You really need to read some Freidman.
The 30s mistake was not austerity. Because there really wasn\’t all that much austerity in the 30s. In the UK the big squeeze was in the 20s (the Geddes Axe) and in the US Hoover doubled Federal spending and blew out the budget deficit.
The mistakes in the 30s were monetary, not fiscal. The UK didn\’t have a horrendous slump in the 30s because we came off the gold standard and thus fixed that monetary problem. The US didn\’t. The Fed allowed the money supply to collapse.
And as you\’ll have noticed, what with QE and the propping up of the banks, we\’re just not making the same mistakes in the 00/10s as were made in the 30s.
Where the situation really is bad, Greece, Portugal, Spain etc, they really are making the mistakes of the 30s. They\’re allowing the money supply to fall and there\’s sod all they can do about it because they\’re in the euro.
All of this leaves room for the argument that fiscal expansion will make things better. Happy, for the moment, to leave room for that argument. But given that the mistakes of the 30s were monetary let\’s make sure we don\’t make monetary mistakes right now, eh?