Let’s Get Fiscal

LONDON – Everyone knows there is no gain without pain. But there can be pain without gain – a lesson that Western populations have been learning the hard way since at least 2012. With years of fiscal austerity in the United States, Europe, and Japan having achieved nothing, it is time for governments to start spending again.

The proposal will be met with outrage from many governments, especially, but not exclusively, Germany’s, and will be dismissed by the many political candidates who treat sovereign debt, built up by the incumbents they are seeking to depose, as the devil’s work. But beyond ideology and self-interest lies a simple and unavoidable truth: austerity is not working.

Japanese Prime Minister Shinzo Abe reluctantly acknowledged austerity’s failure when he announced on June 1 that his government would postpone a planned increase in the country’s consumption tax. Far from helping to control Japan’s budget deficit and huge public debt, the tax hike probably would have reduced revenues. After all, the previous hike, implemented in April 2014, quickly drove the economy back into recession.

The eurozone – the developed world’s leading champion of austerity – has yet to come to the same realization, despite glaring evidence. In 2012, eurozone leaders signed a fiscal compact aimed at controlling public debt – which, in total, amounted to 91.3% of GDP, according to the International Monetary Fund – by forcing countries to cut spending and raise taxes. By 2015, the eurozone’s budget deficit, as a share of GDP, had fallen by two-thirds from its peak in 2010.