Austerity, a re-visit.

There are two articles come into my mind today, while Greece (and other countries) v. trioka (i.e EC, ECB, and IMF)

Austerity v. Europe by Javier Solana
Does Austerity promote economic growth? by Robert Schiller

Debt should not be accumulated to a sky-racketing level, that is for sure. Not every country in the world enjoy the privilege of such borrowing power as U.S. However, austerity promoted so hard recently should not be the single solution as well.

In article of Javier Solana, he mentioned of the Great Depression period, while austerity arguably became the major killer of economy. In Schiller's article, he cited a early Dutch-born English philosopher's poem, suggesting the possible further shrinkage of consumption and employment in EURO-zone.

Yet, the next questions would be, what's the alternative?

1. Austerity + QE..that is what they are doing now, yet as I point out in another article, QE may not help the flow of money into the manufacturing sector, but only to finance and government sectors. (and who knows how these government sectors gotta spend???)

2. Austerity + Fiscal policy regulation (by a particular commission in EU structure): This is something under discussion. Should they create a commission "especially" for Greece? or if they apply to all member states, will France fall under the next prey?

3. No Austerity but structural reform: including a board-based pension cut, job stimulus package and tax-incentives for entrepreneurship: which makes more new firms and create more jobs?
4. ??????

By the way, as Javier Solana happens to serve in PSOE government as a Foreign Minister, he might have more sympathy with what PSOE did before. Yet, honestly, in terms of budget balance, PSOE actually did a great job. The Spanish government deficit was turn positive under PSOE hands, and then remained so until 2007, when they tried to use stimulus to be against economic recession.

Oh, a very interesting paper by Brender and Brazen comes to my notice. (They are from bank of Israel and U Maryland, respectively). They study  the expansionary policy (i.e. huge government spending project) and re-election probability. It does not help, or even lower, the probability of incumbent to be reelected. Sorry, PSOE, you should learn this earlier.