What economists say about Merriam-Webster's word of the year for 2010.

Commentary about business and finance.
Dec. 22 2010 5:53 PM

Austerity Rules

What economists say about Merriam-Webster's word of the year for 2010.

(Continued from Page 1)

So why didn't the United States have to do what Europe did? (Its policy—which it continued, despite bipartisan protests, in the recently enacted tax-cut bill—is to engage in deficit-spending to keep up demand until unemployment falls and the private sector takes over again.) For one, the bond market treats the United States differently than it treats other countries. The cost of borrowing is very low for Washington, both because the United States looks good compared with Europe and because China and other developing countries like to purchase U.S. debt. In addition, the United States has control over dollars in a way that Athens does not over euros. The United States can devalue its currency and cover debts by printing dollars—something countries in the eurozone just can't do.

Therefore, a number of countries have chosen austerity. But austerity—ahem, eschewing socialism, acting like Hoover's doppelgänger, retaining your bigotry about debt, being ebullient about fiscal belt-tightening and putting a moratorium on unnecessary spending, making furtive any dissident Keynesian thoughts so as to avoid a shellacking by the bond markets—might not be the most pragmatic solution.

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