It seems only weeks ago that austerity opponents were crying in the wind. Their words were blowing away unheard. No more. The Greeks flatly rejected austerity in a recent election and attention had to be paid. France elected a new anti-austerity president, François Hollande, and now he has been welcomed by the leader of the world's most important economy as an ally in promoting expansionary policies. "There's now an emerging consensus that more must be done to promote growth and job creation right now in the context of these fiscal and structural reforms," said U.S. President Barack Obama at the recent G-8 summit. Even German Prime Minister Angela Merkel, the champion of austerity, relented a little from focusing solely on budget cuts.
It seems clear that at this time growth must be emphasized over austerity. This is hardly surprising. We have based our economies on growth—essentially on debt—so growth we must have. Countries such as Greece and Spain need investment in productivity and innovation, not depriving the poor and cutting workers wages, and they can't make that investment with austerity-driven policies.
At the summit, President Obama also talked about "significant reforms that will increase the prospects of long-term growth." And here lies the ultimate problem. In a world devouring its resources and polluting its environment, growth cannot continue into the long term. Growth, in the GDP sense at least, must ultimately stop. So we need expansionary policies now, but eventually we must replace our growth-based economy with a sustainable economy. Unfortunately, there seemed to be little if any recognition of this at the summit.
As our species devours the Earth, not with malice aforethought but because it is in our nature, we are like the scorpion that kills the frog on whose back it is crossing the river—it doesn't know what else to do.