Well, here is the effect of austerity: lower effective demand->lower level of activity->economic stagnation. From Center for American Progress:
See rest here.
"The graphs presented below illustrate the costs of austerity from a different angle: the long-term costs of allowing so many productive people and assets to lay idle. By allowing the continuation of the widespread unemployment of workers and potentially productive assets—also known as capacity utilization (see sidebar)—we are forgoing investments in new technology and in the technical skills and productivity of the U.S. workforce that drives economic growth. In other words, as a result of fiscal contraction and the acceptance of a protracted economic recovery, the potential for the U.S. economy to grow is shrinking. The analysis presented here shows that this shrinking will cost the U.S. economy $433 billion and 2 million jobs by 2019."
The real question, of course, is *why* is capacity utilisation down?
ReplyDeleteThe answer, of course, is 45 years of falling profit rates, as documented by Deloitte's Center for the Edge; see:
http://www.deloitte.com/assets/Dcom-UnitedStates/Local%20Assets/Documents/TMT_us_tmt/us_tmt_shiftindex_revised_120512.pdf