Much of the economic debate these days is about whether or not you can avoid the pain of an economic correction, by bolstering the economy though government subsidy funded through debt.
The problem facing the UK, Europe, the US and much of the rest of the world, is that for a decade (if not longer), the economies have been 'growing' through excessive borrowing, with shaky funding foundations and ever more improbable expectations of repayment.
The 'sub prime mortgage' bubble in the US was a major product of this which famously collapsed. Before it's collapse, these debts were commoditsed and traded around the world, contributing to a funding crisis among banks the world over. At the same time, some governments, most notably the socialist governments of southern Europe, had been funding unsustainable social programmes and ingratiating ever higher proportions of their electorate into dependence upon the state, though un-mitigated borrowing.
I intend to publish posts regarding these causes and events leading up to the 2008 crash, but in short, almost ever major institution, and most private people, in the west was over leveraged with debt that could never be re-payed. The solution is to pay back the debts over time, and that necessitates spending less going forward than is actually produced. The debate can largely be framed as how quickly to pay back that debt; how much to cut back spending, and how quickly. Or quite simply 'how much pain?'.
The left leaning theory, often termed, Keynesian, is that by boosting the economy by increasing public spending, the economy has a softer landing, and genuine growth will follow more quickly, enabling the extra debt to be repaid more quickly.
The right leaning theory, often termed Hayekian, is that the bigger the debt, the longer it will take to pay back, and more importantly that markets will find their own level and any attempt to interfere with the market is doomed to fail.
It's not a simple debate, although many would colour it such. In fact it's a careful judgement about whether any debt funded stimulated growth can outstrip the growth of the debt itself. It's also about credibility as this determined the maximum about of borrowing that is available, and the cost of that borrowing.
It's a finally balanced state of affairs, that over time, in a series of posts, as the mood takes me, I intend to explore.
To feel the pain, or not to feel the pain? That is the question, and that is the name of this site.
