In the nearly five years since the worst financial crash since the Great Depression, the remedy for the world’s economic doldrums has swung from full-on Keynesianism to unforgiving austerity and back.
The initial Keynesian response halted the collapse in economic activity. But it was soon met by borrowers’ remorse in the shape of paying down debt and raising taxes without delay. In the last year, full-throttle austerity has fallen out of favor with those charged with monitoring the world economy.
Christine Lagarde, managing director of the International Monetary Fund, has been urging German Chancellor Angela Merkel, who has been imposing singeing public spending cuts on her neighbors, and George Osborne, Britain’s finance minister, who has been doing the same to the Brits, to ease up. The IMF is now urging fiscal measures beyond monetary easing “to nurture a sustainable recovery and restore the resilience of the global economy.”
Earlier this month, Lagarde criticized America’s automatic sequester cuts for being too deep, too soon. The United States, she said, “should consolidate less in the short term, but give … economic actors the certainty that there will be fiscal consolidation going forward.”