Recent estimates by a number of economists suggest that the underlying trend in productivity in the nonfarm business sector is about 21/2 percent per year, close to the rate of productivity growth achieved during the period from 1995 to 2000.
And it is precisely because these things are unpopular that makes it so tempting for politicians to rely instead on monetary accommodation. It is true that consolidation, in particular, might, under normal circumstances, dampen aggregate demand and economic growth. But the question is: are these normal circumstances? It is quite obvious that everybody sees public debt as a major threat.