Austerity is now a failed policy.
The great Keynesian experiment of 2008-2012 can now be examined.
The stage: a global recession affecting all major economies. Large debts on all major western economies.
For the large United States and Chinese economies, Keynesian approaches to dealing with loss of demand were tested. The methods included bailing out banks, low interest rates, stimulative measures such as stimulus spending in construction, food stamps, tax breaks.
For the second sample set, European and UK governments, Austrian approaches were tested. These included attempting to directly treat the problem of government debts by increasing taxes, while cutting government jobs and benefits.
If Keynesians were correct, the US and Chinese economies would be healthy and recovering presently.
If Austrian economics was correct, US and Chinese governments would have wasted all the money of stimulus and now look in poor fiscal shape compared to the European countries which attempted to directly address debt during a recession.
What are the results?
US unemployment is falling, GDP has been growing, stock market near all time highs.
Chinese economy still growing, overall ok (though some major political scandals of late that are quite notable).
UK - rising unemployment and problems.
Spain - rising unemployment and problems.
Greece - rising unemployment and problems.
Major election changes now in Greece and France. Austerity now no longer popularly supported compared to Keynesian methods of stimulus. It appears that the EU is now starting to change course. I am hopeful that they have a strong change of direction, attempt to restore employment and pursue economic growth now during the recession. These elections have made me hopeful for change.
Greece still needs to have major debt forgiveness. Spain needs to spend more to bailout banks, same with France and Germany. Overall EU needs to lower interest rates and keep them low. Heck - EU should just admit that the US was correct and consult Bernanke on how to recover from their mess and get back on track.