Public Debt and Global Austerity

During economic recessions government expenditures rise, Federal tax revenues fall, and budget deficits rise. As these deficits are cumulative, the national debt rises as a share of the GDP. These problems became especially severe during the Great Recession. The financial crisis was a protracted affair; the asset market collapses were deep and prolonged. Declines in real housing prices averaged 35% stretched out over six years and equity price collapses averaged 56% over about three and a half years. This was associated with profound declines in output and employment. The unemployment rate rose an average of 7 percentage points during the down phase of the cycle, which lasted on average more than four years. Output declines were more than 9% on average, although the duration of the downturn, averaging roughly two years, was considerably shorter than that of unemployment. The decline in employment was protracted…