The Austerity Debate with a Twist: An Italian Economist says Austerity will stoke growth

So here’s how the arguments usually go: 1) Austerity (cut government spending/raise taxes) reduces debt and deficits but increases unemployment and (2) stimulus (increase the money supply/increase governmental borrowing and spending) creates jobs and GDP growth but comes with a heavy pricetag in terms of debt and deficits.  The stereotypes say that conservatives are in the first camp; liberals are in the latter.

Then along comes the Italian:  Alberto Alesina says there is a third way.  If it sounds too much like having your cake and eating it too, I’m right there with you.  But given that no one else has any idea what to do (really they don’t) and belt tightening–despite the unabashed Keynesian apoplexy of folks like Paul Krugman–intuitively seems like the grown up way to handle the runaway monetary situation, I say we give it a shot.

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