One of the major economic lessons of the past decade is that austerity doesn’t work. As Greece and myriad other countries have found, you can’t create growth when both the private sector and the public sector are cutting spending. The mathematics simply do not work.
But, while politicians and the public have largely come to embrace this wisdom, economic policymakers and the financial markets have not — until now.
Last week’s appointment of austerity critic Martín Guzmán as the new economy minister of Argentina, and the subsequent stabilisation of both Argentine bond prices and the peso, marks an important turning point in the conventional wisdom about how to fix failing nations. It also marks another step in the most important economic shift of our time — the transition from an era of wealth accumulation that began in the 1980s, to one of wealth distribution.