Two main austerity measures approaches

Two main austerity measures

Two main austerity measures

There are two ways to approach the economic policy:

The Keynesian approach

Wishes to increase public spending by increasing the deficit during recessions, in order to stimulate the economy.

To encourage public spending the government would usually reduce taxes.

The non-Keynesian approach

Argues that the most important step for future growth would be to reduce the government’s debt by tough austerity steps in order to reduce debt yields in the financial markets and make it easier for the country to raise more debt since Lower bond yields reduce the cost of borrowing.

Which approach is better for managing the debts crisis?

The new Japanese government’s approach is based on opposite principles than those applied by European politicians (led by Germany) in their struggle against the debt crisis, a very expansionary fiscal policy in Japan compared with the strict austerity policy in Europe.

It will be interesting to examine the results of Japan’s new economic experiment against Europe’s old one which hasn’t yet been proved successful.

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