Fiscal Austerity as the Achilles’ Heel to Socio-Economic Prosperity

Abstract

Fiscal consolidation is used as a synonym for austerity much as debt restructuring is used as a euphemism for partial repudiation. Inside the political arena of international economics, the nomenclature of government officials in policy debates adopts colorful terminology, such as healthy public finances, to recommend and enforce countries engaging in severe austerity as a means to correcting fiscal imbalances, while maintaining the sustainability of public debt. However, the medical prescription refers to society and it seems that the same old people pay both the fiscal price and carry the burden of the national debt legacy. And, amidst the cyclone’s recessionary eye, the remedy appears to be killing the patient, if not everywhere, perhaps elsewhere too, but, definitely in Greece.

Keywords: fiscal policy austerity, budget deficits, steady state effects of public debt, private-sector wealth and consumption, interest rates, stock-flow analysis

JEL Classification: E2, E6, H3, H6