If you Read Ed’s article on the need for stimulus packages in Europe you may have come across a debate Ed and I had over the nature and merits of a stimulus. Regardless of which side you fell on, there were further issues at stake than just economics. Economists like to see their subject as a science: numerical and evidence based, rational and objective. No doubt, many of their research tools are scientific but economics is also the backbone of the modern world and often not an end in itself, more a vehicle for achieving other ends.
As James Surowiecki argues in the Financial Page of the New Yorker, economics is by no means a science and as the recession draws on, we’re able to examine the cultural memories that can and do direct economic courses of action. From recessions and inflations, each country will have its own preferences and fears that alter the importance attached to different parts of the economy.
In the US, the focus has fallen on the stimulus package and Paul Krugman has made the case that europe should follow suite. He makes a convincing case for a European stimulus package, but is it correct to lampoon European economic policy and decision making as woefully inadequate or to equate US economic policy so readily with Europe? Well in some sense yes, it’ s perfectly fair, the rationale for the stimulus is not so difficult, it could even lead to greater gains if correctly invested in infrastructure which could grow economies in the future, from transport to broadband aswell as tiding Europe over during a recession. In fact, many economists, (despite what many think) advocate deficit spending. They argue that if done correctly it will more than pay itself back through the higher tax-receipts of the economic growth it will yield.
