When can a vote of 25 percent be described as a “stunning victory” or even a “political earthquake”?
Margaret Thatcher used to say that “There is no alternative” to whatever policy she believed in. But there is always an alternative to banging your head against a brick wall — you can stop banging your head against a brick wall. The G20 Finance Ministers’ meeting in Moscow last weekend may have marked such a moment of revelation, when governments around the world gave up on fiscal and financial austerity, and recognized that growth based on consumption, borrowing and rising house prices is better than no growth at all.
Among all the obituaries and encomiums about Margaret Thatcher, very few have drawn the lesson from her legacy that is most relevant for the world today. Lady Thatcher is remembered as the quintessential conviction politician. But judged by her actions rather than her rhetoric, she was actually much more compromising and pragmatic than the politicians who now dominate Europe. And it was Thatcher’s tactical flexibility, as much as her deep convictions, that accounted for her successes in the economic field.
The Age of Austerity is over. This is not a prediction, but a simple statement of fact. No serious policymaker anywhere in the world is trying to reduce deficits or debt any longer, and all major central banks are happy to finance more government borrowing with printed money. After Japan’s election of Prime Minister Shinzo Abe and the undeclared budgetary ceasefire in Washington that followed President Obama’s victory last year, there were just two significant hold-outs against this trend: Britain and the euro-zone. Now, the fiscal “Austerians” and “sado-monetarists” in both these economies have surrendered, albeit for very different reasons.
Ronald Reagan had a catchphrase when faced with a crisis, especially a synthetic “crisis” of the kind Washington loves to concoct. He would call in the officials and media advisers rushing manically around the West Wing and calmly tell them: “Don’t just do something – stand there.” In this respect, as in several others, “No Drama Obama” seems to resemble the man he once admiringly described, despite their ideological animosity, as the last great “transformational” U.S. president.
Whisper it softly, but the age of government austerity is ending. It may seem an odd week to say this, what with the U.S. government preparing for indiscriminate budget cuts, a new fiscal crisis apparently brewing in Europe after the Italian election and David Cameron promising to “go further and faster in reducing the deficit” after the downgrade of Britain’s credit. But politics is sometimes a looking-glass world, in which things are the opposite of what they seem.
The U.S. fiscal cliff was dodged in pretty much the way that seemed most likely after November’s election: a bipartisan deal in which pragmatic Republicans, no longer focused on ending the presidency of Barack Obama, joined moderate Democrats to prevent economic sabotage by extremists from both ends of the political spectrum. On Wall Street, the immediate reaction was euphoria. But among mainstream economists and political commentators in Washington, it was cynicism.
Where will jobs and growth come from? As we enter the fifth year of the Great Recession, people all over the world are asking this question, but their political leaders are not providing any convincing answers, as has been made obvious in the U.S. presidential debate and the European Union summit this week.
Who’s afraid of the fiscal cliff? Even as protests in Spain and Greece revive jitters in the euro zone, global businesses and investors have discovered a new political horror, this time in the U.S. The fear now in world markets is not so much about November’s election, but about the automatic tax hikes and public spending cuts that Ben Bernanke has dubbed the “fiscal cliff.” These fiscal changes, which come into force on Dec. 31 unless Congress passes new legislation, will tighten fiscal policy by some 4 percent of GDP, comparable to the austerity programs in Spain, Italy and Britain.