Originally Posted By: Wolfgang
AGAIN... it all starts with taxes.


Taxes are separate issue.

We are talking here about effects of austerity during recession. Specifically in UK it made recession much worse, I'd argue that this is generalizable to everywhere citing recent examples, while Derid disagrees with me while misusing century-old cases.

Knee-jerk approach of "OMG! Recession! CUT CUT CUT!" only makes recession worse. There is short-term catastrophic consequences where everything goes to shit and there is very dubious and uncertain prospects of it getting better in the long-term.

Correct approach to recession is deficit spending, cutting taxes, and money printing. Think of it as a parachute. You don't want to use it to fly, but if you have to eject from the plane it will save your ass until you get on the ground.

Good time to cut spending and increase taxes is during booming times. When economy is strong and negatives of these steps get offset by overall growth.

Think of economy as fuel mileage (MPG). Difference between 5mpg and 10mpg is huge, while difference between 40mpg and 45mpg is not. The same is with economical growth - 2% to 5% is huge, but 5% to 8% is not so much. Why? Because of overall societal effects - unemployment, wage stagnation and all other social ills happen to a low end, while there very few extra bonuses (for the average guy) at the high end.

[Linked Image]