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In this paper, we provide a critical analysis of the theory of the expansionary austerity. We take the hotly debated contribution by Carmen Reinhart and Kenneth Rogoff on the supposedly negative relationship between public debt and economic growth (when the debt-to-GDP ratio overcomes the 90 percent threshold) as the starting point of our analysis. We then move to analyze those contributions that more directly point to the possible expansionary outcomes of tough fiscal retrenchments. We eventually criticize the main conclusions of the expansionary austerity theory by presenting a simple short-run theoretical model. We show that fiscal consolidation might have expansionary outcomes only under pretty extreme, or very specific and uncertain circumstances. Expansionary austerity would hardly take place in the context of monetarily sovereign economies, or in presence of an accommodative monetary policy like that implemented by the ECB since late 2011, or into economic systems that are poorly integrated on international goods markets.

Suggests that the current international system wherein monetary policy is effective at stabilizing inflation rates while failing to stabilize exchange rates might be the best system going. Coordinated monetary policies are costly; thus, despite currency volatility, independent monetary policies are advocated for two reasons: (1) Policymakers are much better as mismanaging exchange rates than stabilizing them because currency swings are hard to explain or even understand. (2) Although volatile exchange rates are costly, demonstrating their relevance is nearly impossible. Some believe that exchange rate volatility is not good for trade, but that effect is asserted to be small in practice. While the costs of flexible exchange rates appear hard to detect, risks in stabilizing currencies are rather apparent, as seen in China's fixing of the yuan-US dollar rate. Heavy-handed financial controls are seen as detrimental to developing countries. Noting that policymakers must be able to respond to overly wild exchange rate movements that lose touch with economic fundamentals, it is contended that, currently, central banks should guard against inflation & leave exchange rates to the market. J. Zendejas

Suggests that the current international system wherein monetary policy is effective at stabilizing inflation rates while failing to stabilize exchange rates might be the best system going. Coordinated monetary policies are costly; thus, despite currency volatility, independent monetary policies are advocated for two reasons: (1) Policymakers are much better as mismanaging exchange rates than stabilizing them because currency swings are hard to explain or even understand. (2) Although volatile exchange rates are costly, demonstrating their relevance is nearly impossible. Some believe that exchange rate volatility is not good for trade, but that effect is asserted to be small in practice. While the costs of flexible exchange rates appear hard to detect, risks in stabilizing currencies are rather apparent, as seen in China's fixing of the yuan-US dollar rate. Heavy-handed financial controls are seen as detrimental to developing countries. Noting that policymakers must be able to respond to overly wild exchange rate movements that lose touch with economic fundamentals, it is contended that, currently, central banks should guard against inflation and leave exchange rates to the market.

Argues that contrary to prevailing notions, the European Union has the capacity to emerge as the leading world economic power. Factors underpinning this include the EU's fewer working hours, its well-educated & versatile workforce, & its fundamentally strong political & legal institutions. How the EU might catalyze its economic advantages is suggested, eg, copying US technological innovation, realizing the value of trade with Asia, & luck. J. Zendejas

Compares the pre-election spending of President George W. Bush with that of other election year presidents, especially against that of President Richard Nixon, 1971-1972. Each president faced similar economic situations, such as war expenditures, large budget deficits, a depreciation of the US dollar, & changes in monetary policies. On all counts, Nixon's electoral economic engineering to acquire votes gains the advantage over that of Bush. Bush still cannot compare to election year presidents of other countries, such as Mexican Presidents Jose Lopez Portillo in 1982 & Carlos Salinas de Gortari in 1994, Russian President Boris Yeltsin in 1996, nearly every Italian prime minister, & even British Prime Minister Margaret Thatcher pushed for looser macroeconomic policies during reelection campaigns. President Jimmy Carter in 1979 became an exception in resisting pre-election economic engineering by appointing tough-minded Paul Volcker as Fed Chairman. Assuming Bush does not outdo Nixon's spending in the months remaining before the 2004 election, Bush's pre-election spending will not have the same bad post-election aftermath as did Nixon's. M. James