Sometimes I geek out on economic reports to get a sense of how a country is doing. One report I read every year is the Bermuda government’s annual budget statement.
Bermuda’s GDP grew by a meager rate of 0.75%-1.25% in 2017, following seven consecutive years of economic contraction. Given the island’s sluggish growth, its leaders are pondering how to get the economy back on track. One question being asked is:
“What’s right for the economy right now, Austerity or Stimulus?”
Finance ministers around the world constantly wrestle with this very question, and I thought the distinction between austerity versus stimulus was summed up quite nicely in Bermuda’s 2018-2019 budget statement as follows:
“Some will compare the situation with how you might manage your household budget; if you have greater outlays than income, you have three choices.
Firstly, you can cut. You cut off the Internet service and cut the cable bill; you buy
only the absolute necessities from the grocery store on a Wednesday; you do not spend
a cent in order to fix your financial situation. While you may not be spending, it is
questionable if you are living.
A second approach, is to ignore the situation. You continue to spend as you always
have, without worrying about cutting back. You simply borrow more money to
maintain your unaffordable lifestyle, while doing nothing to improve your situation.
While you may be living, you are living on borrowed time.
The final approach is to invest in yourself in the hopes of increasing your income so that it meets your expenses. This can come from taking out a loan to increase your
skills to get a better job, or from using that money to invest in a business that can
cause your income to exceed your outlays [in the future].
In economic terms, that is the difference between austerity (option 1) and stimulus (option 3).
Like I said, nicely summed up by none other than The Honorable Edward David Burt, Bermuda’s Premier and Minister of Finance. He also happens to be the nation’s youngest ever premier, having taken office at the age of 38.