The drumbeat of contempt for the L-plated treasurer, Josh Recessioberg, is ceaseless and growing louder. Monetary curmudgeon Stephen Grenville leads us off:
The story begins in the 1960s. The combination of the Vietnam War, LBJ’s Great Society and the moon landing put such pressure on US capacity that inflation was inevitable. Once the inflation-expectations genie was out of the bottle, the 1970s stagflation followed, as tight policy attempted to counter inflation’s persistence…This painful period incubated a rethink of fiscal policy. Academics abandoned the Keynesian view in which fiscal policy was a powerful instrument to ensure full employment. Instead, it was argued that budget deficits would spill overseas into imports, push up interest rates and crowd out private-sector expenditures. Higher public debt would make consumers cut expenditure, anticipating future tax increases.
…The 2008 financial crisis changed all this. Globally, budget balance could not be maintained in the face of financial bailouts and the worst recession since the 1930s…But old ideas die hard. Once the Greek crisis unfolded in 2010, debt concerns encouraged the USA, the UK and Europe to impose budget austerity on the fragile recovery…Practical academics came to recognise the growth-sapping nature of this austerity.
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