David Olive wrote last week that there are three things this generation of world leaders doesn't get:
The first point is that this is no run-of-the-mill industrial recession. This is a rare financial recession, whose devastation is acute and widespread in the world.
To listen to Finance Minister Jim Flaherty’s hectoring of Europeans to get their fiscal house in order, or the conviction of British PM David Cameron and German Chancellor Angela Merkel that troubled nations would be best served by adopting their tough-love prescriptions (a view shared by most Republicans in the U.S.), is to conclude that these folks think the current difficulties lend themselves to expedient “solutions” and will soon blow over.
But it's going to take a decade, Olive wrote, to repair the damage done in the last three decades.
The second thing world leaders don't understand is that the austerity they currently advocate is a false hope:
And so America’s dynamic recovery of 2009-10 has stalled. The aftershocks of the U.S. downturn have pushed Europe into recession. Even China this week slashed its GDP growth estimates for this year to a mere 3 per cent to 4 per cent, after close to a decade of double-digit growth. Japan remains mired in economic stagnation of two decades’ duration.
The latest failure of capitalism sucked demand out of the global economy. All of the world’s biggest economic engines have conked out, for lack of demand. And it’s that paucity of demand – or the spending that creates jobs and tax revenues – that is the immediate cause of unmanageable sovereign debt in Europe. The latter was a non-issue prior to a collapse in demand that drained public treasuries. Those treasuries have been abruptly starved of tax revenue even as requirements for emergency state assistance have soared.
And last, and most importantly, governments need to invest in the future. The debt they incur now will reap dividends:
Otherwise current generations will suffer the future consequences of deprivation of income, of child support (hungry children have difficulty learning), and of superior formal education (slashing school budgets is a sure route to lack of future competitiveness).
A range of social ills derive from the false economy of balancing the books on the backs of present generations, which are made to forfeit opportunities to flourish in mind and heart. There’s much work to be done in the world – replacing century-old infrastructure, to start – and a rare abundance of idled skilled labour to do it.
We can talk, as the austerity champions do, of long-term gains to be had from the imposition now of brutal economies. But as John Maynard Keynes said, “In the long run, we’re all dead.”
What Olive is advocating is nothing new. It worked during the Great Depression. But today's leaders are not students of history -- and, so, they don't get it.