Stimulating debate

In this article, the author, Buttonwood casts his doubt on whether government’s policies are effective enough to overcome the economy recession. Buttonwood thinks of that the effect produced by governments is far less than the influence generated by the market itself. He believes that the stimulus measured by governments will not last long. He makes use of the example of Greece, where ten-year bond yields reached 7% last month. It is a rate that may even higher than the rate of Greek GDP growth. Therefore, it predicted that an austerity package is needed in order to prevent Greece from falling into this debt trap. Further, admitted that the stimulus may have inhibited the global economy from slipping into depression, he says, according to academic studies, higher government spending may actually slow down the rate of economic growth. Moreover, Buttonwood points out that the stimulus initiated by government has not really coped with the problem of debt; rather, it merely transferred the problem from the private to public sector.

In summary, Buttonwood argues that the authorities are facing a dilemma; reducing the stimulus now would probably plunge the economy back into recession, but if keep the stimulus for too long governments may risk damaging long-term growth prospects. Therefore, he concludes that economies need to stand on their own two feet.