Financial Crisis And Its Effects On Public Debt - 2487 Words

Blyth defines austerity as â€Å"the ‘common sense’ on how to pay for the massive increase in public debt caused by the financial crisis†, which comes primarily through the elimination of government services. People knowingly take on debt with the intention to then pay it off-- before the financial crisis of 2008 people took on debt to pay bills and banks took on debt to make money by leveraging. When the crisis hit, the government felt the banks were â€Å"too big to fail† (because a crucial part of economic activity in the US is tied up in liquidity of the largest banks) and bailed them out. When a person’s debt becomes too high they pay it down with income rather than continuing to spend and pump money into the economy, or â€Å"deleveraging†. In†¦show more content†¦When entities (households, firms, governments, banks, etc.) believe it is positive all pay off their debt at once. However, many countries’ governments are deci ding to encourage this because no one wants to pay off the huge amount of debt they owe, and rather than increasing taxes they are cutting government services through consolidation under the excuse of not raising taxes. The result, however, is that those at the bottom of the income hierarchy are affected and continue paying their usual taxes anyway which ceasing to receive the benefits they rely on. Professor Mariana Mazzucato describes Europe’s desire to foster places like the US’s Silicon Valley and create empires similar to Amazon and Google. She explains their belief that withdrawing from the state and encouraging things like venture capital will promote growth- but she challenges that assumption. For her, a myth exists that there are two parts to innovation: on the one hand there exists a dynamic, innovative, creative, fast and interesting private sector, and on the other a slow, inertial, bureaucratic, state sector which is believed to at best contain the busines s cycle and create infrastructure for projects. She names three characteristics of innovation: it is collective, uncertain, and cumulative, and believes that the â€Å"entrepreneurial state† has a greater capacity than the private sector to foster innovation not because the it provides fiscal stimulus, builds important infrastructure, or