Public-Debt v/s Private-Debt...

Article;

Harvard Debt Luminaries We Dont Like Austerity as Muchas You Think


Comment;

Nobody is saying that austerity is bad and the government should not repay its debt. But austerity is bad in the face of high unemployment and depressed economy. The point is that government has spend much during normal times that it has punctured its reserves which could be used in reviving the economy during recession. The major issue is crowding-out and it is public debt v/s private debt.Debt is debt, afterall. During normal times, before recession, the government must had crowded-out private investment which went un-noticed during the euphoria. But it is more unfortunate to hit the line when snake has passed. Now crowding-out is not an issue anymore because private sector is not investing and is sitting on a lot of idle capacity. It is expecting the government to come up with a credible plan to boost employment and income so that they can rev-up their spending. But stringent government finance are not allowing itself to help with fiscal-policy recommended during a demand slump. Milton Friedman (now passed away) the great monetarist has a great influence among the current US economists which made them use monetary policy, including Open-Market-Operation and quantitative easing, and made them not to give up easily. As far as fiscal policy is concerned it will boost employment and income, the same thing, a raise in minimum wages, although directly, will do but without increasing productivity. Production in the government sect will increase and with it productivity and wages...