After Austerity

The high tide for Keynesian fiscal stimulus came in 2008 and 2009. Panicked governments spent, spent and spent to stem the financial crisis and avoid a depression. But as economies stabilized in 2010 and 2011, governments began to worry about public debt. Enter the austerians. They pressed for fiscal consolidation -- and got their way. One has to look back to the 1940s and 1950s, as nations demobilized from World War II and the Korean War, to see a comparably rapid tightening.

Now, though, the intellectual case for austerity is on its way out -- at least in its vulgar form of immediate cuts to public spending and sharp increases in taxes. Part of the change comes from the implosion of a central claim in an academic paper by Harvard economists Carmen Reinhart and Kenneth Rogoff. They found that nations stop growing when their ratio of public debt to gross domestic product passes a threshold of 90 percent. Their findings were exhibit A for advocates of austerity.