Austerity Explained

What is Austerity?-Austerity is a policy adopted by countries around the world, to get rid of debt, usually after a recession. The most common austerity measures include cuts to public spending, tax rises, or a combination of both.

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Debt is a major problem in modern societies because interest has to be paid on it, meaning that if the interest rate rockets up, countries can fall into even bigger debt. In the long term, some argue austerity measures can create a more fiscally responsible society, increasing the markets confidence in an economy, and giving more power to wealth creators. However, in the short term, a reduction in public spending can lead to increased unemployment, and therefore may require the government to spend more on the welfare state and possibly increase taxes.

One of the major opponents of austerity was John Keynes. He claimed that to reduce the effects of recession, the government should stimulate the economy with more money, to help to spur on GDP growth and reduce unemployment. He also stated that large deficits were not a bad thing, if they were caused by governments spending more to alleviate the effects of a recession. "The boom, not the slump, is the right time for austerity at the Treasury."- Keynes once said. Whatever your opinion is on the matter, it seems austerity will be continuing for the foreseeable future, with many European economies adopting it as major policy.