The wrong medicine

by Aaron Wherry

Douglas Porter quibbles with the Prime Minister’s prescription for economic woe.

“We could be making some of the same mistakes. Certainly, there are echoes of 1937,” agreed Douglas Porter, deputy chief economist at the Bank of Montreal. Last week, Prime Minister Stephen Harper and British Prime Minister formed an unusual alliance of debt hawks, coming down firmly on the side of stricter austerity as the way out of the crisis – at least in Europe … 

Mr. Porter said Mr. Harper’s call for global austerity is “precisely the wrong medicine at this time.” Government bond yields in Canada, and in most other countries, have sunk to multi-year lows in recent days. That’s a sign that financial markets are stressed about economic growth prospects, not government deficits or inflation, according to Mr. Porter. “Governments shouldn’t be aggressively cutting spending when the economy is gasping for air,” he said. “That’s certainly the wrong prescription.”




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The wrong medicine

  1. I totally agree with Mr Porter, austerity is precisely the wrong medicine at this time.

    You can’t fix the economy by fixing the debt, but you can fix the debt by fixing the economy.

  2. Jim Manzi ~ What Social Science Does – And Doesn’t – Know:

    In early 2009, the United States was engaged in an intense public debate over a proposed $800 billion stimulus bill designed to boost economic activity through government borrowing and spending. 

    James Buchanan, Edward Prescott, Vernon Smith, and Gary Becker, all Nobel laureates in economics, argued that while the stimulus might be an important emergency measure, it would fail to improve economic performance. Nobel laureates Paul Krugman and Joseph Stiglitz, on the other hand, argued that the stimulus would improve the economy and indeed that it should be bigger. 

    Fierce debates can be found in frontier areas of all the sciences, of course, but this was as if, on the night before the Apollo moon launch, half of the world’s Nobel laureates in physics were asserting that rockets couldn’t reach the moon and the other half were saying that they could. 

    Prior to the launch of the stimulus program, the only thing that anyone could conclude with high confidence was that several Nobelists would be wrong about it.

    http://www.city-journal.org/2010/20_3_social-science.html

  3. Maybe Mr. Porter should run in the next election, because Canadians seem to agree that austerity is what’s needed.

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