In the on-going debate on whether to further stimulate the economy by keeping up the fiscal loosening over the past 2 years, the Keynesians argue that had fiscal spending been boosted during the Great Depression, it might not have been so severe. As such, the developed countries should learn from it and continue running fiscal deficits, lest their economies relapse into a double-dip recession.
To silent the inflation hawks who warn that extremely loose monetary and fiscal policies could lead the escalating inflationary pressure, they counter that because of excess capacity in the economy, the clear and present risk is indeed deflation.
And to the question of how the public debt, resulting from the extra government spending, the answer is: as the economies recover, government income shall resume its upward trend while the public expenditure shall be progressively reined in. Governments shall therefore revert to controlled fiscal policies in the medium to long term.
What is missing from the debate is the social- economic factor of the aging society. As the baby-boomers retire, social welfare such as pension and medical expenditure will exert a heavy pressure on government spending. And as the society ages, pools of workers will shrink and the impacts on gross GDP and capacity have not been fully studied.
If the overall effect of the aging society is higher public spending because of welfare expenditure and lower government tax receipts derived from shrinking work force, it will make sense for the governments to reexamine their capacity to borrow vis-a-vis their willingness to spend... and spend... and spend.
It has been said that the greatest threat to capitalism is the invention of credit card- it gives individual the opportunity to spend at present what they intend to repay in the future without realising that the money will not be there in the future.
Hopefully, the developed world's governments will think twice before flashing out their plastics.
To silent the inflation hawks who warn that extremely loose monetary and fiscal policies could lead the escalating inflationary pressure, they counter that because of excess capacity in the economy, the clear and present risk is indeed deflation.
And to the question of how the public debt, resulting from the extra government spending, the answer is: as the economies recover, government income shall resume its upward trend while the public expenditure shall be progressively reined in. Governments shall therefore revert to controlled fiscal policies in the medium to long term.
What is missing from the debate is the social- economic factor of the aging society. As the baby-boomers retire, social welfare such as pension and medical expenditure will exert a heavy pressure on government spending. And as the society ages, pools of workers will shrink and the impacts on gross GDP and capacity have not been fully studied.
If the overall effect of the aging society is higher public spending because of welfare expenditure and lower government tax receipts derived from shrinking work force, it will make sense for the governments to reexamine their capacity to borrow vis-a-vis their willingness to spend... and spend... and spend.
It has been said that the greatest threat to capitalism is the invention of credit card- it gives individual the opportunity to spend at present what they intend to repay in the future without realising that the money will not be there in the future.
Hopefully, the developed world's governments will think twice before flashing out their plastics.
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