Austerity

If austerity can be defined as self-denial and abstention from worldly pleasures, what a joyless bunch we have been, with all that cutting and scrimping. Household savings are up and governments the world over are trying to spend less. Enough already! Thank goodness Christine Lagarde, the International Monetary Fund managing director, thinks this is not the time to be excessively virtuous. European political leaders are increasingly questioning austerity measures too.

So why did equity markets sell off last week, particularly in Europe, where Ms Lagarde’s comments were directed? After all, more government deficit spending means higher corporate profits, other things being equal. Stocks did not soar because investors know that blaming spending cuts for Europe’s woes is not entirely backed up by the facts.