A Dangerous Experiment
Here is a take on the G20 commitment to cut deficits and reduce debt. David Leonhardt, not quite echoing Paul Krugman’s dire warnings, does set out the question with clarity. Will the G20 deficit and debt targets lead to greater private sector confidence and spending to fill the space left by the end of stimulus or will they set off a new cycle of economic weakness and private sector cuts? This is partly a question of timing, that is, whether it’s too early for austerity but it’s also partly about how best to achieve sustainable growth.
He wonders why the decision to cut government spending found such unanimity. Some countries, he suggests, are so deeply in trouble that arguably they had no choice, Greece of course but maybe England too. But Leonhardt also points to the impact of the extremely loud voices who have an interest in denying the value of stimulus and of government spending more generally. So cutting trumps stimulus and investing. It’s a dangerous experiment – for now and for the longer term.
However we slice it, it does seem clear that developed countries have made promises to their citizens that they cannot keep at current rates of taxation and therefore something has to give sooner or later. Tuesday’s market performance suggests that the question is not off in the far distance. Nobody wants to pay more taxes and most politicians would far rather cut than tax but I am not alone in wondering how we hope to make the numbers add up. Our aging population will mean more pressure on health and social services and, of course, elderly benefits and, at the same time, lower revenues.
Surely now is the time for a serious discussion of the cost of the promises to citizens for education and innovation, health, social services and greening the economy and how we might pay – or which ones are we ready to give up on. Now is past time for a discussion of taxes, how to raise them fairly and with least economic impact – or to confront what we must give up instead, what services we cut, what capacities we lose, what opportunities we miss. Let’s have the discussion. It cannot be avoided indefinitely.