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Austerity or stimulus?

August 24th, 2012

Commentators across the political spectrum debate whether public programs or restrictions on spending would help most to overcome the economic crisis.  Pro-government analysts recommend a Keynesian stimulus, while a liberal economist considers this option unavailable for the Hungarian government.

Obedience to the neo-liberal dogmas which led to the current financial crisis in the first place would only deepen the economic problems, Dávid Megyeri writes in Magyar Nemzet. The pro-government columnist recommends that instead of the austerity, spending restrictions and deregulation promoted by investors and financial markets, governments should stimulate the economy by creating jobs and boosting demand.

Megyeri quotes the Keynesian economist Paul Samuelson that “the real remedy for the crisis is expansion and development,” and not the neo-liberal doctrines embraced by  “pseudo left-wing” Hungarian opposition parties. He also refers to President Roosevelt’s New Deal program, which helped to increase output and employment with massive state intervention. Megyeri suggests that the Orbán government’s economic policies are in-line with such principles.

In Heti Válasz, Tamás Mellár also. Mellár, a former advisor of PM Orbán who has been highly critical of György Matolcsy, Minister of National Economy, suggests that some of the failed measures of the government were based on ‘neo-classical principles.‘ Tax cuts for instance, did not prove to be successful in boosting consumption and creating jobs, Mellár points out. Instead, the government should offer targeted support to medium-sized and small businesses, he suggests.

The debate about whether austerity or stimulus could help to recover from the crisis is highly dogmatic, economist Péter Pete remarks in Magyar Narancs. Although restrictive fiscal policies are widely criticized and there is a widespread fear that austerity will result in a downward spiral by reducing demand, Pete contends that spending cuts may yet prove to be successful. If governments manage to convince markets that austerity measures will translate into a lower deficit and debt, government bonds can be sold at a lower rate and the volume of investments will increase.

As for the options open to the Hungarian government, Pete believes that the government has no resources to stimulate the economy, and thus has only one choice: reaching an agreement with the IMF.

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