Dealing public sector spending and economic revival.

Byline: Mohammad Nadeem Malik

Last quarter of any financial year is not less than a budget season. Everyone including government institutes, corporate sector, government employees and even common persons are generally found debating upcoming budge and its impact on their economic lives. This debate becomes more vehement and intense in the times of struggling economyand stagnant economic growth. As such, the current year is not an exception and there are debates how to push start economic growth to put the economy back on track. Government institutions are analyzing the reasons for missing the tax collection targets, low GDP growth, soaring circular debt and mounting trade deficit. The measures to improve all the economic indicators are also being planned by the respective government institutes. The short run and long run impact of IMF loan on the lives of the common person is also a hot topic for such discussions.

Some financial experts advocate a check on government spending to control economic meltdown. Most of the common people and media easily got influenced by this austerity drive oriented narrative making it a popular approach to resolve complex economic problems. At the most, the austerity drive can be just one of the various remedial measures but realistically speaking this is an over simplified cosmetic approach and an over emphasis on it can sometimes have a negative effect delaying the economic recovery. Austerity drive is usually interpreted as a restraint on public sector spending that can further aggravate the economic recession.

Government intervention and use of public spending to revive economy has always been a subject of debate among the economists. Capitalism believes in laissez-faire economy where the economic activities are free from government interventions and are based on supply - demand factors. This sounds good, everybody is free to compete and get its share based on its ability and competitive advantage. However, what to do if something goes wrong with the economy? Should the government wait for the auto recovery system to revive the economy leaving common people to suffer during the recovery process or the government should intervene to help the early economic recovery by taking the brunt of economic stagnation on it?

The proponents of the market economy and the Austrian Economics believe that the market factors should be allowed to freely interact and settle. Adam Smith believes that there is a tendency of free...