And third of all, it's so sharp, it just cuts.

When Bush asked for spending cuts at the beginning of the year including a social security reform that includes cuts in future benefits world financiers expected that Bush would get his way, or most of it. Little did they appreciate that American voters, having never actually supported spending cuts, would resist.

Instead, for four years they pretended that budget deficits were of little concern. Only after being re elected did they begin to explain that large budget deficits, caused mainly by lower tax revenues, would require sharp cuts in social security, health care spending, and other areas.

When an economy is suffering from high unemployment and weak aggregate demand, spending cuts are contractionary. Romney conceded this point recently, acknowledging that the fiscal cliff the expiration of Bush era tax cuts at the end of this year, combined with large spending cuts already scheduled to take effect would push the economy back into recession.

When an economy shrinks, government debt grows automatically, because its revenues decline and its expenses rise. When it cuts spending, its debt grows even more, because its cuts cause the economy to shrink further.

Even worse, the sequester s across the board spending cuts make no distinction between effective and essential programs and programs that represent special interests or have outlived their original purpose. Such arbitrary cuts are likely to inflict more damage on the economy than sensibly targeted cuts of the same magnitude.

Recent research also reveals that in OECD countries since World War II, successful fiscal consolidation defined as stabilizing the budget while avoiding recession averaged 5 6 of actual spending cuts per dollar of tax hikes. Cuts in spending, especially on entitlements and transfers, were far less likely to cause recessions than tax increases were.

What are the likely costs and benefits of stimulus versus consolidation? And what is the best combination of spending cuts and tax hikes?

For example, Ryan supported George W. Bush s spending spree. He also supports maintaining defense spending at or near its current level resisting the cuts that were put in place under the Budget Control Act of 2011.

Spain has a combination of all three. But, while the specifics differ, the implications are the same all must now endure excruciatingly painful spending cuts.

Spending cuts and revenue increases that have been legislated since 2011 will reduce the projected deficit by 2.4 trillion over the next decade, with three quarters coming from spending cuts, almost exclusively in non defense discretionary programs. Based on current economic assumptions, the US needs about 4 trillion in savings to stabilize the debt GDP ratio over the next decade.

Carlo Cottarelli, appointed by the Italian government to oversee its expenditure review, noted recently that even before spending cuts were enacted, they were being used to finance new spending. The political economy of public spending reform is tricky, and well designed macroeconomic plans can be taken hostage by pork barrel politics.

But, they fear that calling for spending cuts will be unpopular, unlike, they hope, demands to balance the budget. For them, the problem with the fiscal cliff is that it does not cut spending enough and raises taxes too much.

That possibility could arise sometime in the future, when the proverbial brick wall comes into view. But it is not on the horizon yet, which means that there would be no positive private spending response to buffer public spending cuts.

Introductory economics used to emphasize the Keynesian multiplier effect recipients of government spending (or of consumer spending stimulated by tax cuts or transfers) respond to the increase in their incomes by spending more, as do the recipients of that spending, and so on. Again, the multiplier is much more relevant under current conditions, because it does not fuel higher inflation and interest rates (and thus crowd out private spending).

When weak aggregate demand causes the economy to operate far below its potential, cuts in government spending enlarge the jobs deficit. Indeed, in his recent speech in Jackson Hole, Wyoming, US Federal Reserve Chairman Ben Bernanke warned that such cuts significantly inhibit job creation.

Anemic government spending, not profligacy, has been a major factor behind the economy s lackluster recovery. According to a recent report by the Congressional Budget Office, large spending cuts by state and local governments and, more recently, a significant reduction in federal spending have contributed to the unusual and prolonged weakness of aggregate demand.

It has no economic justification. In the long run, additional targeted spending cuts will be necessary as part of a balanced package to stabilize the debt GDP ratio.

The Center on Budget and Policy Priorities finds that almost two thirds of the Ryan budget s spending cuts would come from such programs. Romney offers few specifics, but simple arithmetic shows that his plan would require even deeper cuts in these programs than Ryan s plan would.

The Center on Budget and Policy Priorities finds that almost two thirds of the Ryan budget s spending cuts would come from such programs. Romney offers few specifics, but simple arithmetic shows that his plan would require even deeper cuts in these programs than Ryan s plan would.

Public support for spending cuts is also difficult to win. As a result, many Western policymakers are seeking alternative solutions many of which can be classified as financial repression.

Now, however, increased government spending and the resulting rise in the fiscal deficit are being justified as necessary to deal with the economic downturn a sharp change from the reliance on monetary policy that was used to deal with previous recessions. Countercyclical fiscal policy had been largely discredited because of the delays involved in implementing fiscal changes and households weak response to temporary tax cuts.

Yes, there will be big spending cuts which will hit defense contractors, doctors with Medicare patients, and all who benefit from or rely on government discretionary spending and substantial tax increases. But, to balance the budget in the long run, either taxes have to go up or spending has to go down relative to some baseline, or both.

Spending cuts and tax increases that in the long run restore fiscal sanity and balance are good. Having them all hit a weak, still depressed economy simultaneously is not good.

At first glance, one might think that lowering taxes would make people happier, because having more disposable income increases their wellbeing. But other factors can also come into play, such as whether the tax cuts are perceived as fair and whether they are accompanied by unpopular spending cuts.

Until now, the diplomatic effort to prevent dangerous climate change has focused on coordinating national cuts in greenhouse gas emissions. But what is needed is more spending, not just more coordination.

America s gravest fiscal problem is the short and medium run deficit between tax revenues and spending. This deficit is entirely of Bush s own creation, having enacted and now seeking to extend tax cuts that are not cuts at all, because they merely shift the burden of fiscal consolidation onto future generations.

Why? It cuts fuel poverty, it cuts their bills, and it cuts carbon emissions at the same time.

Economically, the new program is perverse, because it will plunge Greece deeper into depression. It envisages raising additional taxes, cutting pensions further, and implementing automatic spending cuts if fiscal targets are missed.

Romney s vow to cap federal spending at 20 of GDP by 2016, while maintaining defense spending at 4 of GDP and leaving both Social Security and Medicare unchanged for those 55 or older, implies exempting more than 50 of government spending from cuts for the next decade. So, to hit the 20 cap, spending on everything else would have to be slashed by an average of roughly 40 by 2016 and 57 by 2022.

Partisan disagreement about the proper scope of government remains, but there is no overall rejection of state intervention. Often, it is not interests or ideologies that make public spending cuts unavoidable just facts.

But growth prospects could be undermined by another bruising political battle over the federal budget, resulting in deep spending cuts. The current Republican rhetoric in the House of Representatives portends additional fiscal austerity.

Ms. Donna Sharp, Senior Partner, Sharp Global Partners Ltd., United States

Academic research has shown them at work in the past for example, in Ireland and Denmark during the 1980 s. Unfortunately for the Tories, neither case for stimulative spending cuts fits Britain s predicament today.

Governments should therefore restrict spending cuts to those that will not cause the economy to contract. Likewise, they should increase only those taxes that, when raised, do not reduce consumption, investment, or job creation.

There was rolled up turkey cold cuts, rolled up ham cold cuts, rolled up roast beef cold cuts and little cubes of cheese.

Romney acknowledges that large spending cuts, along with the scheduled expiration of tax cuts at the end of this year, could throw the economy back into recession in 2013. But he vows to steer the economy from the fiscal cliff by extending the tax cuts enacted under George W. Bush, doubling down with a further 20 across the board cut in income tax rates and cutting the corporate rate from 35 to 25 .

Stay sharp.

But the way to minimize the pain is to cut spending without cutting output, which requires selling to others what residents can no longer afford. In other words, unless Greece boosts exports, spending cuts will amplify the output loss in the same way that Keynesian multipliers amplified the output gain from borrowing.

As the economist Alberto Alesina has found from studies of fiscal stabilization in OECD countries, eliminating fiscal deficits through spending cuts tends to be much better for the economy than eliminating them through tax increases. A natural interpretation is that spending adjustments work better because they promise smaller government, thereby favoring economic growth.

In the long run, if primary surpluses are achieved by controlling spending, the increase in national saving will promote investment and growth, whereas higher tax rates would work in the opposite direction. Successful post World War II fiscal consolidation in OECD countries averaged 5 6 in spending cuts per 1 of tax hikes.

He also promises an immediate 5 cut in non defense discretionary spending in 2013, on top of the huge cuts already scheduled to take effect. And he has ruled out additional temporary fiscal measures aimed at job creation, like President Barack Obama s proposals for additional grants to states and additional infrastructure spending.

It is senseless for each national government to invest limited resources identically. This moment holds potential spending cuts could be transformed into an opportunity to coordinate and integrate Europe s defense industry, thus maximizing overall efficiency.

In fact, I do not believe that Osborne himself ever attached importance to the signaling effects of his pronouncements. He really did want to balance the budget by making the spending cuts that he promised.

Sharp stones are under him he spreadeth sharp pointed things upon the mire.