Can the recent calls for anti austerity measures apply to developing economies?
I argue that the current policy fad is quite dangerous for developing economies for various reasons ; that developing economies do not have the privilege of strong currencies that serve as a reserve currency for the world hence any expansionary policies will lead to collapse of the exchange rates in developing economies as well as total budget collapse and ballooning of debt as the foreign currency denominated debt for both sovereign debt and corporate debt balloon out of control.
Recent policy subscriptions by eminent economists like Larry Summers , Paul Krugman seem to suggest that austerity is completely unnecessary and counter productive. Most policy makers and politicians from the developing economies would welcome this shift in economic policy prescription. It is against the old age gold standard for policy making that budget deficits are bad for economies.
Antiusterity policies lead to budget deficits which is followed by high interest rates , inflation and crowding out of private sector investments and a weaker economy . It leads to higher taxes in the future as well.
To explain austerity Is state of reduced spending and increased frugality in the financial sector. Austerity measures generally refer to the measures taken by governments to reduce expenditures in an attempt to shrink their growing budget deficits.
the current policy prescription recommends anti austerity policies.
The policy makers around the world see to agree with this prescription .
the politicians have been following this closely and anti austerity parties seem to be winning the day from UK where Jeremy Corbyn rose to lead the Labour Party this year has lead the ruling conservatives to wobble in policy stance with the chancellor not of exchequer not clear about his view on austerity. See Here Jeremy Corbyn is now proposing the QE quantitative easing for the people . See here Here
Larry summers seem to applaud the Canadian Conservative party for winning the election on anti austerity stance. See his article on the Washington post Here
Paul Krugman another eminent economist and a Nobel prize winner advises Japan to ditch budget balancing austerity policies and adopt Expansionary policies .
As he states in his article in the New York Times: he takes an issue with the popularity of austerity policies and reluctance of political leaders to pursue expansionary anti austerity policies as he says ” Part of the answer is that demands for austerity serve a political agenda, with panic over the alleged risks of deficits providing an excuse for cuts in social spending.”
see full article Here
As if the support for antiausterity is not enough the World Bank own research arm has said that financial consolidation causes adverse effects to job prospects . See here Here
I argue that the current policy fad is quite dangerous for developing economies for various reasons ; that developing economies do not have the privilege of strong currencies that serve as a reserve currency for the world hence any expansionary policies will lead to collapse of the exchange rates in developing economies as well as total budget collapse and ballooning of debt as he foreign currency denominated debt balloons out of control.
