MacroscopeFalling stocks and a slumping global economy mean a welcome return to economic stimulus, as austerity and deregulation exit

Governments everywhere are turning to stimulus, it seems, to stave off the very real risk of global recession. This return to Keynesian-centred solutions must avoid boosting inequality again, though; governments should agree on a global ‘New Deal’

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Leaders of the world's seven richest democracies attend a forum on the international economy, trade and security in Biarritz, France, on August 25 at the annual G7 Summit. Photo: AFP

Published: 3:10pm, 26 Aug 2019Updated: 10:27pm, 26 Aug 2019

So ends an unfortunate chapter in world history and not a moment too soon. With financial markets getting trashed and the global economy on the slide, neoliberalism is in its death throes, with a welcome return to less harsh, more interventionist economic policymaking long overdue.

Keynesian-centred solutions rescued the world after the 2008 crash and now, in the face of a new global onslaught, policymakers are turning again to well-tried ways of pumping up demand with lower interest rates, more monetisation and increased deficit spending.

The system which spawned fiscal austerity, laissez-faire markets, unfettered deregulation, risky securitisation and globalisation has had its day. If policymakers have learned anything in recent years, it is time for a more positive approach to global policymaking. The world is crying out for safety and security.

The shock of global trade tensions is clearly turning heads in favour of extra countercyclical stimulus measures. President Donald Trump wants new fiscal measures to boost the flagging US economy while pressuring the Federal Reserve for more aggressive interest rate easing.

Germany is mulling over more expansionary budget policies to help boost growth in Europe. British Prime Minister Boris Johnson seems set on ramping up the budget in a pre-election spending spree, while Italy is setting itself up for new budget frictions with the European Union to stave off recession risks. Meanwhile, Beijing must keep its deficit-spending taps wide open to protect the government’s 6 to 6.5 per cent growth target this year.

Global recovery in the past 10 years has been badly hamstrung by fiscal drag as governments have stressed the need for lower budget deficits. Fiscal stabilisation, especially in Europe, has been at odds with getting the global economy moving again at full speed. Now austerity is being dumped and fast-tracking growth is being given the highest priority. It is a little late and countries will need to overcompensate to make up for lost time.