The New Austerity

Governments across the world, spooked by the Greek financial crisis, the California budget mess, and their own red ink are imposing spending cuts and tax hikes in the midst of a severe recession.

In the short term all of these governments are stuck, and either option -- spend more and see debt soar, or cut back and see the recession deepen -- looks bad. But this crisis did not fall from the sky. The problem is that most of the world's nations have been running budget deficits even in boom years. Because their fiscal situations were already bad, the recession made them terrible. The long-term solution is for countries to stop running deficits in good years and maybe even set aside a little surplus, so that when recessions come they can spend what it takes to set their economies right without running up dangerous debts. Of course this means voters will have to accept an end to the "cut taxes, increase services" policies they have been demanding. Are democracies capable of such a thing? We will see.