Magazine August 2, 2010, Issue

Cut to Grow

John Maynard Keynes (right) speaks with Harry Dexter White, assistant secretary of the Treasury, in Savannah, Ga., March 8, 1946. (International Monetary Fund/Wikimedia Commons)
Want stimulus? Trim the budget.

The word “austerity” has achieved ubiquity in 2010 almost as rapidly as “stimulus” did in 2009 and “bailout” in 2008. All three were ushered in by “subprime,” 2007’s economic buzzword. “Austerity” implies pain, but all it means is balancing the budget, and most economists would agree that this need not be painful. Their disagreement concerns the conditions under which a nation can balance its budget without causing pain.

The Keynesians, who advocate deficit spending for economic stimulus, are lined up on one side of this debate, arguing that the key to avoiding pain is simply getting the timing right: They say

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