Question 1 – Austerity in Europe
The key to answering this question is to understand why economists recommend that countries ought to run balanced fiscal positions over the economic cycle, and how getting fiscal budgets that are in significant deficit under control can help a struggling economy. What is not acceptable at this level of analysis is to use simplistic comparisons with households. We’re talking about complex economic systems here so we need to use macroeconomic analysis not homespun principles. The papers by Reinhart, Reinhart and Rogoff, and Taylor will help you with this. They argue why traditional expansionary fiscal policy won’t work and how large public sector debt is a bad thing. Try to work out the step by step logic of how reducing spending and deficits will lead to stronger growth for a country.
Part of the process of evaluating this position, once you’ve outlined it, is to think about how some of the steps in its logical structure might not make sense, or how any part of the argument might not be consistent with empirical evidence. So you need to think about the austerity argument and see whether you think it makes sense. I’ve given you a number of references that try to do this which you might find helpful in stimulating your thinking on this point. You can also look at alternative arguments about how struggling economies like Greece can be helped then compare these alternatives to the austerity argument, find the key differences, and work out which you think makes more sense. Note that you need specific reasons for why one argument is better than another. Again a number of the papers try to offer these kinds of alternative so you might find these useful.
It would be helpful to have a little bit of knowledge of current Greek politics which you can get from The Economist website.
Note that you have to reflect on the ethics of the austerity policy. I comment on the ethical dimension of the essay for both papers below.
i will upload relevant journal articles, question details and the marking criteria later.
