Governments today in both Europe and the United States have succeeded in casting government spending as reckless wastefulness that has made the economy worse. In contrast, they have advanced a policy of draconian budget cuts - austerity - to solve the financial crisis. We are told that we have all lived beyond our means and now need to tighten our belts. This view conveniently forgets where all that debt came from. Not from an orgy of government spending, but as the direct result of bailing out, recapitalizing, and adding liquidity to the broken banking system.
Ever since the emergence of mass democracy after World War II, an inherent tension has existed between capitalism and democratic politics; capitalism allocates resources through markets, whereas democracy allocates power through votes. Economists, in particular, have been slow to accept that this tension exists. Instead, they have tended to view markets as a realm beyond the political sphere and to see politics as something that gets in the way of an otherwise self-adjusting system.
Most economists agree that the global economy is stagnating and that governments need to stimulate growth, but lowering interest rates still further could spur a damaging cycle of booms and busts. Instead, central banks should hand consumers cash directly.
When the anti-austerity party Syriza came to power in Greece in January 2015, Cornel Ban and I wrote in a Foreign Affairs article that, at some point, Europe was bound to face an Alexis Tsipras, the party’s leader and Greek prime minister, “because there’s only so long you can ask people to vote for impoverishment today based on promises of a better tomorrow that never arrives.”
This May’s general election wins for British Prime Minister David Cameron and his Conservative Party confounded opinion pollsters and surely surprised Cameron himself.