Mohit Marakna
Globally, the advanced countries are facing the problems of high unemployment; at the same time, developing nations are also slowing down. Austerity measures tend to reduce government spending and increase taxes, which can be counterproductive to employment generation and also tend to decrease GDP.
So, deficit spending is the need of the hour. Economist Paul Krugman has proposed that the government should spend more in the times of increasing unemployment and lower growth.
The austerity measures should be taken during the boom periods and when the world economy and the countries really start to recover from current situation.
The European countries should not go for austerity measures now but only after a real recovery is seen. The world today is still on a weak growth recovery path and the austerity measures should be slow, not hasty.
Some have even put forth the argument that it would be actually counterproductive to be austere if you talk from a strictly economic point of view, as it would lead to some stability in the short run, but would contribute to job cuts and even further to another slowdown.
The author studies at the MS University of Baroda. This entry is part of the FE Mastermind contest. Views are personal