I tend to think that fiscal austerity is a risky project at this early stage of the recovery. Various people disagree.

For a trader, the interesting question is what to make a bet on today. From my general reading, I get the impression that investors like the idea of fiscal austerity. The kind of people who work as professional money managers are likely to be the ones whom a bit of economics has corrupted (people who have studied economics have a warped sense of fairness, for example — they are more likely to think that economically rational outcomes are fair). Such people tend to believe that the market should be allowed to clear out our economic problems through a process of creative destruction and to worry when this process is impeded by government action.

In due course, I think economic growth will slow as fiscal retrenchment starts to bite. Government spending cuts may even tip us into another recession. But in the meantime, investors are likely to be happy about fiscal “discipline”, which means that it should be supportive of risk markets.