Tag Archives: fiscal stimulus
Arguably the greatest debate of the second decade of the twenty-first century is presently playing itself out in the world’s broadsheet columns: should the path to recovery from the nearly half-decade old financial crisis be sought through austerity, where governments cut back expenditure with the aim of returning to solvency, or via an economic growth model where states intervene in the macroeconomy to stimulate aggregate demand?
Most pieces that we’ve come across bear pronouncedly ideological stamps: those wishing to use this historical juncture to severely circumscribe the role and capacity of the state are keen to push an austerity agenda, while those of a more statist bent find the need for implementing Keynesian countercyclical theory self-evident. One of the more balanced contributions to this issue – The boom was the illusion, authored by no less a figure than Baron Skidelsky, Emeritus Professor of Political Economy at the University of Warwick – does a decent job of sketching out the limitations of both approaches; however, contains the seeds of what in our eyes is an even more controversial issue: the rebalancing of the global economy.
Skidelsky posits that regardless of which lenses the present crisis is viewed through, the prevention of future crises must be facilitated via a global economy acting more uniformly. Credit-defined countries such as the United States (and presumably the United Kingdom) ‘must consume less and export more’; export-oriented economies such as China and Germany should do the opposite: save less, and import and consume more. The Harbin-born academic pulls no punches with his stark conclusion: ‘If China and Germany insist on being 21st-century mercantilists – exporting more than they import – the rest of the world will start to protect itself against them. Germany’s policy will lead to the breakdown of the eurozone, China’s to the breakdown of the world trading and payments system.’
From the perspective of possible consequences, this argument may have some merits, but is it remotely fair? Both Germany and China’s economic conduct has been exemplary insofar as these states are not responsible for creating the financial crisis. In Germany’s case, it has prized sober capital accumulation and the manufacturing of great products that the entire world is in love with; particularly within the last twenty years, high-saving China has taken great strides to educate its population, with millions of graduates now entering the labour force every summer.
Germany is almost single-handedly propping up the eurozone; China’s capital surplus was a lifeline for the American economy even as it enjoyed what Skidelsky correctly refers to as an illusory boom. Yet for all this, they are still being labelled as ‘mercantilist’ and their economies deemed in need of ‘rebalancing’.
To prescribe the United States and other similar economies to adopt sensible macroeconomic trajectories is one thing, but to tell economies whose own responsible management is one of the few reasons for optimism in an otherwise extremely uncertain climate is not merely counterintuitive, but possibly morally questionable.