NEW YORK ( TheStreet) -- The ongoing debt crisis raging in Europe, China's doubts about the sustainability of its own economic growth and the fear and volatility riddling the U.S. markets have caused an increasing number of investors, market commentators and economists to don their bear suits and prophesize that, unless drastic steps are taken, the worst may still be upon us.Exactly what the proper next step is, however, remains unclear. Debate regarding the appropriate next action toward solving the current issues facing the global economy has driven many market professionals and government officials into two separate camps: those that call for additional stimulus, and those that call for austerity. While both sides boast their own collection of notable names and followers, a recognizable spokesperson has risen from each. The voice for the stimulus side of the argument is Nobel Prize winning economist and New York Times ( NYT) columnist, Paul Krugman. On the austerity side is notable British economic historian, Niall Ferguson. Fans of Krugman's argument insist that the best way for the U.S. and global economy to pull out of their current struggles is for government to launch another round of Keynesian stimulus. The underlying theory is that this action would aid the current employment situation which, for Krugman and his fans, is a primary element to solving the economic crisis for two reasons. First, taking on the current employment picture is essential because it prevents against a self-perpetuating cycle of higher unemployment in the future. In an interview on CNN, Krugman explains that when citizens stay out of work for longer periods of time, recommendations get stale and experience is lost. This hinders their ability to get back into the work force in the future. Second, the economist believes that low unemployment will lead more consumers to spend. This will help protect against the threat of economic deflation in the future. Krugman appears concerned about the long-term fiscal strain that comes with pumping additional stimulus into the economy. However, he feels that taking on the current issues facing the economy is essential to ensuring that these future economic struggles can be resolved.
On the other side of the argument, Niall Ferguson believes that the Krugman approach to solving the economic crisis is a sure fire way toward economic Armageddon. He fears the U.S. is already headed for a situation similar to that which Greece is facing right now unless it cuts spending and that more deficit spending will only hasten and exacerbate the eventual crisis. Rather than throwing more money at the problem in the form of another round of government spending, Ferguson suggests that leaders around the globe should redirect their concerns toward the long term dangers that come with growing deficits. Closing looming budget gaps requires radical fiscal reform aimed at fixing entitlement issues such as Social Security and Medicaid. At the same time, Ferguson suggests making efforts to rationalize the tax code. He is confident that proper reform would both put the global economy in a better fiscal position and increase business confidence. Ferguson agrees that reducing unemployment and protecting against the threat of deflation are two essential hurdles to overcome in order to get the U.S. and global economy back on track. However, rather than providing businesses with stimulus to spur hiring, he theorizes that the type of radical fiscal reform he is promoting will make business and entrepreneurs confident that the outlook for the economy (and government debt and taxes) is positive, therefore driving them to hire once again. The battle between these two camps is far from over and it is likely that both parties will have plenty of words to exchange in coming months. Do you find yourself siding with Krugman or with Ferguson? Is there a compromise somewhere? Feel free to leave a comment below.