Austerity policy

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An austerity policy is one that views short-term reduction of a budget deficit as necessary for long-term economic recovery.

This is in direct opposition to Keynesian economics, which argues that stimulating the economy through large expenditures is more likely to be beneficial in the long run.

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Notes

Thomas Herndon [W] a graduate student in economics at the University of Massachusetts Amherst, discovered multiple errors in "Growth in a Time of Debt [W]", a widely cited academic paper by Carmen Reinhart and Kenneth Rogoff supporting the austerity policies implemented by governments in Europe and North America in the early 21st century and concluded that these measures may not have been necessary. The paper's authors insist that their conclusions remain valid.

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