I know classical Keynesian economics isn't exactly in vogue here, but it would indicate that if you run a 4% deficit, your economy will grow by more than 4%. It depends on the savings rate, but somewhere in the 8% range wouldn't be out of the ordinary. So, if that 8% relies on deficit spending, it will of course need to go. If your economy relies on running deficits to produce growth, you're headed for a blowup. The sooner it happens, the less severe the blowup. Greece wouldn't have been in such a bad spot if they did this a decade ago... and continuing down this course is not going to help the younger folks in Greece in the long term, it's making their situation worse.
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Date: 16/11/12 05:39 (UTC)I know classical Keynesian economics isn't exactly in vogue here, but it would indicate that if you run a 4% deficit, your economy will grow by more than 4%. It depends on the savings rate, but somewhere in the 8% range wouldn't be out of the ordinary. So, if that 8% relies on deficit spending, it will of course need to go. If your economy relies on running deficits to produce growth, you're headed for a blowup. The sooner it happens, the less severe the blowup. Greece wouldn't have been in such a bad spot if they did this a decade ago... and continuing down this course is not going to help the younger folks in Greece in the long term, it's making their situation worse.