It seems to me that much of the discussion surrounding the stimulus and ‘austerity measures’ and deficits and so forth fails to take into account the different priorities of our short and long term budget horizons. Many businesses will borrow and spend a great deal on capital investment one year in order to expand or increase efficiency and will spend the next few years paying down those debts, cutting back on spending, and so forth.
In the context of government spending, it seems completely reasonable to borrow at exceedingly low interests rates now in order to spend on much needed capital investment (think infrastructure, public services, etc.) and to help stimulate the economy, and then pay down debts, cut spending, and raise taxes during good times. It seems equally sensible to have a payroll tax holiday, and to avoid raising taxes until employment starts to recover. Austerity and tax hikes are well suited to prosperous times when balancing the budget won’t contribute to higher unemployment rates.
