[BOOK REVIEW] Austerity – it sometimes works, and sometimes doesn’t
This week Whitfield interviewed Isaah Mhlanga, Chief Economist at Alexander Forbes (scroll up to listen).
Mhlanga reviewed “Austerity: When It Works and When It Doesn't” by Carlo Favero.
A single year does not constitute austerity… If it’s a number of years, and it has sizeable cuts in spending or tax increases - or a combination of the two - then it qualifies as austerity…Isaah Mhlanga, Chief Economist - Alexander Forbes
Why is austerity necessary? … If they followed good fiscal policy, they would almost never need austerity… When the economy is good, you reduce government spending. When the economy is in difficulty… you increase government spending… But we abandoned all of that…Isaah Mhlanga, Chief Economist - Alexander Forbes
We need to build buffers… We need to build an emergency savings account… That’s why we need fiscal austerity…Isaah Mhlanga, Chief Economist - Alexander Forbes
Description on Amazon:
A timely and incisive look at austerity measures that succeed ― and those that don’t…
Fiscal austerity is hugely controversial.
Opponents argue that it can trigger downward growth spirals and become self-defeating.
Supporters argue that budget deficits have to be tackled aggressively at all times and at all costs.
In this masterful book, three of today’s leading policy experts cut through the political noise to demonstrate that there is no one type of austerity but many.
Looking at thousands of fiscal measures adopted by sixteen advanced economies since the late 1970s, “Austerity” assesses the relative effectiveness of tax increases and spending cuts at reducing debt.
It shows that spending cuts have much smaller costs in terms of output losses than tax increases.
Spending cuts can sometimes be associated with output gains in the case of expansionary austerity and are much more successful than tax increases at reducing the growth of debt.
The authors also show that austerity is not necessarily the kiss of death for political careers as is often believed and provide new insights into the recent cases of European austerity after the financial crisis.
Bringing needed clarity to one of today’s most challenging subjects, “Austerity” charts a sensible approach based on data analysis rather than ideology.
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