Blog #2 Stimulus or No Stimulus, That Is The Question
As countries around the world still feel the effects of the current recession, the old debate, about whether to stimulate the economy or let it run its own course, has found new life. On one hand, there is Keynesian economics which condones government intervention through fiscal policy, including government spending and lowering taxes. This policy has recently been put to practice by the United States with their near trillion dollar bailout and in other countries such as Greece’s with their trillion dollar bailout. Here in Canada, the Conservative government went against their roots by dishing out around 30 billion dollars in bailouts. The alternative to Keynesian economics is, of course, monetary policy which advocates influencing the market through raising and lowering interest rates as well as controlling the flow of money.
A recent worldwide poll, done by BBC World Service, shows that more than half the world is opposed to stimulus spending. Interestingly, the strongest opposition comes from the countries which have already started spending. Among those countries are the United States with 58% of those surveyed rejecting stimulus, Germany with 66%, and France with a 63% rejection. .
In my opinion, stimulus spending is impractical because it simply redistributes debt from the people to the government. Beyond that, it is a theory which requires the government to save during good times in order to pay off the debt. This is something that citizens are generally unwilling to accept as people tend to want more services during economic booms. Instead, I believe it would be wiser to practice monetary policy, a policy which guides the economy to fix itself. It does so by offering incentives for people to spend using practices such as lowering interest rates.
http://www.theglobeandmail.com/report-on-business/economy/world-split-on-stimulus-spending/article1729626/