Austerity vs. more stimulus is the ongoing debate plaguing policymakers around the globe as countries try to figure out ways to eliminate rising government debt without creating an economic catastrophe.
Europe took to the path of austerity and it did not go well for the eurozone economies, which have tipped back into recession. In fact, things have gotten so bad in Europe that voters in France and Greece this weekend ousted leadership who agreed to the austerity programs proposed by the European Central Bank and the International Monetary Fund. (See: France's Hollande Is "Bluffing" But Greek Vote Raises Real Concern: Kirkegaard)
In the United States, political ideologies have stalled any progress on the federal budget and efforts to reduce the country's $15.7 trillion (and growing) debt load. Washington's dysfunctional politics is what led to the country losing its triple-A debt rating last August —rating agency S&P actually feared political bickering in Congress more than the growing debt itself.
Republicans tend to take a very hardline approach, arguing for across-the-board spending cuts and against raising revenue through tax increases.
Democrats, on the other hand, generally would prefer to spend more now on programs that would help keep the economy afloat in the near term and take to gradual spending cuts after the economy has rebounded. Democrats also favor raising taxes on corporations and millionaires and lowering taxes for middle class families.
If Congress cannot come together by the end of the year, the economy will face additional risks: the Bush tax cuts will expire and more than $1 trillion in automatic spending cuts will hit in January 2013.
Most American's Favor a Mixed Approach
A new poll by the Peter G. Peterson Foundation Wednesday shows that Americans do not consider the debt issue as black and white as do Republicans and Democrats.
"The country is ahead of its leadership," Peter Peterson, a bastion of fiscal reform, told Politico in an interview. "Picking either austerity or stimulus is an utterly false choice."
Here are some of the findings of the survey, courtesy of Politico's Morning Money:
- 81% of respondents say the national debt is a major problem that must be addressed now.
- 86% of respondents agree reducing the deficit would help the economy.
- 87% of respondents believe that to solve the long-term debt problem, Republicans will have to agree to some tax increases and Democrats will have to agree to some spending cuts..
- 53% of respondents would be more likely to support a candidate for Congress if they knew that the candidate supported a bipartisan agreement that included both spending cuts and tax increases.
- 76% of middle class voters believe that the middle class should contribute to the solution.
Indiana Gov. Mitch Daniels: Govt. Debt Is Close to the Point of No Return
In the accompanying interview, taped at the Milken Institute Global Conference last week, The Daily Ticker's Aaron Task talks to Republican Indiana Governor Mitch Daniels about the looming fiscal cliff the country faces at the end of 2012 and how to best to manage the country's "grotesquely over-sized" government debt without killing the economy.
Daniels, a former budget director under President George W. Bush and adviser to President Ronald Reagan, managed to lead the state of Indiana to its first balanced-budget in eight years. He turned a $700 million deficit into a $370 million annual surplus.
"I don't buy, and never have, the idea that somehow borrowing more money…is anything but phony and temporary prosperity," Daniels says. "The markets want to see at least the first steps toward squaring [away] our long-term obligations and resources and we ought to get started sooner rather than later."
While Daniels does favor trying to reduce the debt via spending cuts, unlike many Republicans he would not rule out the idea of raising taxes if worse comes to worst.
"The situation really, in my opinion, is close to the point of no return and if I couldn't get and ideal mix as I see it — I am interested in hearing what the second or third choice would be," he says.
Tell us what you think in the comments below or on Facebook! Do you favor government austerity or more stimulus spending?
Here's More Daily Ticker Coverage from the Milken Global Conference