07/12/10 — Listening to world politicians, you are bound to think it is darn near impossible to get rid of deficits. But ordinary citizens should ask themselves: what is our government talking about? You all know it; when you spend more than you earn one month, next month you’ll have to tighten the belt and spend less. Yet, when it comes to the government spending too much, no one talks about tightening any belts. Quite the contrary; when it comes to government books, the proverbial belts somehow always end up loosened up and spending invariably increases. No wonder governments confuse fiscal restraint with penalizing austerity.
Some economists are calling the G20 Toronto Consensus close to barbaric, inflicting pain on local and global economies, even threatening the recovery if Keynes’ idea of deficit spending is not propagated as the only and final solution. And, yet, reading the Toronto Consensus, all that’s plain to see is a slap on the wrist of the world’s largest economies and a “Scout’s Honor” that the G20 would cut their deficits in half in the next three years and restrain
themselves from borrowing for the next five years? Seriously? That’s all it would take to dig the global economy out of the deepest hole into which it has ever fallen?
It appears that the fear tactics have been dusted off and put to work again. Opponents to government fiscal austerity are invoking the worst of 9/11 scare tactics that had created the war on terror and the fear mongering nurtured during the credit crisis that had led to trillions of dollars of good money being thrown after who knows how much bad money. What are Americans being scared with now? Well, too many of the world’s most influential governments are making ominous “hints,” most of them alluding that, if fiscal austerity is adopted, the return of the Great Recession is imminent, along with the economic collapse of many democracies.
But just how much more sovereign debt must governments take on to protect themselves from the real and imagined fears that are plaguing them? How much more debt will have to be incurred to satiate Keynesian debt champions? In the 1920s, government spending ranged between 10% and 20% of GDP while fighting the Great Depression. Currently, the U.S. government is spending 45% of GDP just to keep its head above water. How far does it want to go? How far can it go? When will it be enough and what “austerity” measures will be needed then?
To be fair, it is not only the public sector gorging itself on debt. Private sector spending is also on the rise at an annual rate of about 3.5%, compared to 1.2% in 2008 and 2.3% in 2009. It seems that a huge shift of wealth is happening in the U.S. economy, transitioning from the most productive sectors towards the weakest ones. I understand why governments are trying to obscure this fact by creating an elaborate environment of fear, but I have a hard time understanding why there are still people out there who are subscribing to Keynesian delusions, particularly after seeing the devastation that massive debt running amok leaves behind.
From the day that Congress passed the TARP Program, I knew the other shoe would eventually drop. And it did, at the end of June, in the Metro Convention Centre in Toronto, Canada, when world leaders congregated for the most expensive photo op in the G20
summits’ short history. The way I see it, the G20 Toronto Consensus is nothing more than a feeble attempt to pacify the global economy, and voters around the world, with the idea that something is being done about mountains of debt and rivers of money in global financial systems. The “other shoe” also reflects something truly frightening: the governments’ inability, or unwillingness, to govern. I honestly don’t know which is worse.