In fact, when you combine the growing evidence that fiscal austerity is reducing our future prospects with the very low interest rates on U.S. government debt, it’s hard to avoid a startling conclusion: budget austerity may well be counterproductive even from a purely fiscal point of view, because lower future growth means lower tax receipts.
What should be happening? The answer is that we need a major push to get the economy moving, not at some future date, but right now. For the time being we need more, not less, government spending, supported by aggressively expansionary policies from the Federal Reserve and its counterparts abroad. And it’s not just pointy-headed economists saying this; business leaders like Google’s Eric Schmidt are saying the same thing, and the bond market, by buying U.S. debt at such low interest rates, is in effect pleading for a more expansionary policy.
And to be fair, some policy players seem to get it. President Obama’s new jobs plan is a step in the right direction, while some board members of the Federal Reserve and the Bank of England — though not, sad to say, the European Central Bank — have been calling for much more growth-oriented policies.
What we really need, however, is to convince a substantial number of people with political power or influence that they’ve spent the last year and a half going in exactly the wrong direction, and that they need to make a U-turn.
It’s not going to be easy. But until that U-turn happens, the bleeding — which is making our economy weaker now, and undermining its future at the same time — will continue.