It seems to fair to say that the decision by the Group of 20 nations to cut their deficits in half by 2013 isn't exactly good news. For sure, anyone who worries about excessive government spending and its impact down the road should welcome the belt-tightening. But even these observers must confront the potential near-term impact on economic growth, unemployment levels and corporate profitability.
So is this a damned-if-you-do, damned-if-you-don't moment? Cam Hui, who writes the Humble Student of the Markets blog, puts the dilemma this way:
"It's a question of whether we want to hurt now or hurt later. There are no good choices. This is only a slight exaggeration but politicians who choose an effective 'hurt now' option, as per the BIS analysis, could go down in history as the economic equivalent of the Pol Pot regime. The 'hurt later' school, by contrast, are choosing the financial equivalent of releasing a latent Ebola virus into their population, to be manifested at some time in the future."
Yikes. Meanwhile, there is another - far more petty - debate on the blogosphere: Who exactly coined the term "austeria"? This is a clever play on words meant to label countries that are busily imposing austerity measures - namely Europe. Mark Thoma, at Economist's View, has received some credit for the phrase.
However, Rob Parenteau, a research associate at the Levy Economics Institute, takes exception, saying he coined the term on June 10, in a BNN interview (like the Globe and Mail, a part of CTVglobemedia).
Incidentally, he believes that the fretting over austerity measures is misplaced because capitalists haven't been acting like capitalists lately.
"There is a glut of profits, and these profits are not being reinvested in tangible plant and equipment," he said in an article published on Naked Capitalism, suggesting that there is a lot of money out there to replace government spending.
"Companies, ostensibly under the guise of maximizing shareholder value, would much rather pay their inside looters in management handsome bonuses, or pay out special dividends to their shareholders, or play casino games with all sorts of financial engineering thrown into obfuscate the nature of their financial speculation, than fulfill the traditional roles of capitalist, which is to use profits as both a signal to invest in expanding the productive capital stock, as well as a source of financing the widening and upgrading of productive plant and equipment."