# Cut deficit Boost economy



## dewdrop (23 Apr 2012)

This mantra has often been repeated in this country and now i hear the likely new French President has it as one of his key objectives. Perhaps i am naive but i am puzzled how this can be achieved. Put simply cutting the deficit usually results in reducing domestic spending as we all well know  and this then stagnates growth. I feel one can only hope that demand from non EU countries like China will do the trick?


----------



## Chris (23 Apr 2012)

Maybe you could point to one country that has managed to spend its way out of a financial mess. 

When governments spend money it has to be taken from somewhere because governments do not have money of their own. Either they find their spending through immediate taxation, or through deferred taxation, i.e. borrowing. Either way there is no net benefit from government spending as any mi ey put into the economy is also taken out. 

Ireland is currently financing spending is the worse of the two options, i.e. through borrowing. The negative impact of deficit spending is two fold, (a) there is less credit available for the productive sector and (b) the money has to be paid back plus interest thus increasing the need for higher future taxation.

Economic crises have never been solved through increased spending, this has only ever led to prolonging of the crisis.


----------



## Brendan Burgess (23 Apr 2012)

Dan O'Brien had an excellent, balanced article on the topic in Friday's Irish Times

[broken link removed]




> “I put austerity first. Only austerity can give back growth.” So said Alex Stubb, Finland’s minister for European affairs.
> 
> 
> Nobel  prize-winning economist Paul Krugman stated with similar assuredness  that staying the austerity course in Europe was akin to economic  suicide.
> ...


----------



## dewdrop (23 Apr 2012)

In reply to Chris i get the impression that it is suggested that both actions can be achieved at the same time which was what i intended to raise in my OP


----------



## Chris (3 May 2012)

dewdrop said:


> In reply to Chris i get the impression that it is suggested that both actions can be achieved at the same time which was what i intended to raise in my OP



The initial effect of cutting spending, whiteout cutting taxation, would be a reduction in GDP, purely because of the way GDP is calculated. Whether or not GDP or GNP are good or relevant measures of how well an economy is doing is a hold other debate.

At this stage in Ireland's case there is no way of getting to a long term recovery of the economy without pain, the question is how organized or disorganized that is going to be.


----------

