Austerity Made Easy

Home / Comment / Austerity Made Easy

Austerity Made Easy

Austerity. The one thing that economies dislike more than hyperinflation is the lack of expenditure (which is quite ironic given that expenditure could lead to inflation). Many people believe that the lack of expenditure in the economy is credited to the fact that the government may not be spending enough to spark the cycle of increased spending. Government spending is usually brought in when the economy has experienced a slump in the actual growth in the economy, this is to boost spending by consumers as government spending help businesses as subsidies for example are introduced to reduce the costs of the firms, reducing the cost for the firms mean that the prices of the goods will depreciate, the depreciation of price cause people to be more attracted to the good, and more people will be buying the goods that have experienced a reduction in price, overall meaning there is a multiplier effect as the government spending has caused the spending in the economy to increase further. This however, has its limitation as the UK currently have a shocking budget deficit, increased government spending will be funded by borrowing, this further increases national debt.

Increased government spending should be handled with care -too much government spending could cause the economy to overheat, especially if the economy is booming. The economy becomes uncontrollable, and with increased consumerism, prices eventually rise as long periods of high demand acts as a signal for businesses to raise prices. Hence if businesses continue to raise their prices, in our economy, those whose wages are not rising at the same rate as the prices will be worse off than before and poverty could increase.

Secondly, the UK’s industry could be hit hard internationally. If prices in our economy are rising, internationally our exports will fall as there will be cheaper alternatives to UK produced goods. Less exports could result in the balance of payments between exports and imports becoming negative (more imports than exports) –more money flowing out of our economy than into our economy.

The government often use deflationary fiscal policy in periods such as an economic boom (rapid economic growth) due to the boom being unstable for long periods of time, it’s aim isn’t to harm the economy, it is to create a stable economy, however the problem with such policies is that it takes two years on average for the effects to be seen, so the Government would need the correct information of the most likely future to make decisions. Deflationary Fiscal policy include increasing taxes, (conservatives do not believe in the increase of tax, therefore they decrease tax slightly, and decrease government spending drastically, as seen in reduction of youth centres and increase in university prices) such as corporate tax, the reduction of subsidies (which is a way to reduce government spending and create a form of austerity), this would increase cost of production and limit the amount firms are willing to supply, this in turn could reduce consumerism in an economy at a sustainable rate.

One of the main economic policies in the UK is to reduce the budget deficit, another one is economic growth. In this instance, there is clearly there is a trade-off, so it is a question of which one is most important to the government, but the bigger question is where should the tax be taken? Disabled people? Young people? Or self-made achievers?

Comment by Obuasa Djabatey.

Recent Posts

Leave a Comment

Contact Us

Drop us a line and we'll get back to you as soon as possible.

Not readable? Change text. captcha txt