Monitor | Opponents of austerity are barking up the wrong tree
GDP measures quantity, not quality. Specifically, it fails to distinguish between the economic contributions of the private and public sectors
Whenever I see television news footage of young Greeks or Spaniards protesting against public spending cuts, or hear an eminent economist railing against austerity measures in Britain or the US, I confess I have to scratch my head.
I'm familiar enough with their reasoning. The young indignados feel bitterly short-changed, unfairly deprived of both jobs and a future by government cuts.
Meanwhile, the economists complain that cutting spending to reduce debt doesn't work. It ends up depressing output, so that debt rises, not falls, relative to gross domestic product.
I don't doubt the sincerity of their arguments. I'm just not sure they make sense.
Given that the government spending those young protesters are so keen on is funded largely by debt, you would think they would heartily endorse cuts. After all, they are the ones who are going to be saddled with paying off all that debt in the future.
As for the economists, they are arguing that to prevent debt rising as a proportion of GDP, governments should support GDP by taking on more debt. In short, they seem to be saying that countries should try to borrow their way out of debt.