ECONOMIC policymaking, like hemlines, has fads. Last year the leaders of the G20 group of big economies led a global Keynesian boost, pledging fiscal stimulus worth a combined 2% of world GDP to prop up demand. At their most recent gathering, in Toronto on June 26th-27th, the club's rich-world members pledged “at least” to halve their deficits by 2013. Though they left themselves wiggle room, the change of tone was clear. Thanks to Greece's sovereign-debt crisis, which has terrified politicians, stimulus is out and deficit reduction is in.

The trend has been most noticeable in Europe, where every big economy has spelled out spending cuts or tax increases in recent weeks. But it is evident everywhere. Japan's new prime minister, Naoto Kan, has pushed a debate about raising the consumption tax to the top of the campaign for the upper house of parliament. In America, Congress's fears about the deficit have thwarted the Obama administration's efforts to pass a new mini-stimulus (see article).

Until recently the deficit-cutting rhetoric exaggerated its likely short-term impact. Germany has long been one of the loudest proponents of the need for austerity. But its near-term plans (tightening worth 0.4% of GDP in 2011) are modest. Spain was the only big European economy forced by financial markets into immediate, tough austerity. Yet now Britain has chosen that route, with a budget that promises tightening worth 2% of GDP in 2011. The expiration of America's stimulus implies a fiscal tightening of some 1.3% of GDP in 2011, a figure which could rise considerably if Congress prevented the extension of George Bush's tax cuts. Much could change, but for now the rich world looks set for a collective fiscal adjustment worth around 1% of its combined GDP next year, the biggest synchronised budget contraction in at least four decades.

Goodbye Keynes, hello Hoover

To Keynesian critics the switch to austerity is a colossal blunder. Paul Krugman, an economist who writes in the New York Times, frets that officials who “seem to be getting their talking points from the collected speeches of Herbert Hoover” will push the world economy into a depression. With unemployment high, output far below its potential, private spending still weak and interest rates close to zero, Mr Krugman and his allies argue that fiscal stimulus remains an essential prop to the economy and that deficit-cutting now will spell stagnation and deflation.

From the other side, supporters of the shift to austerity believe it is both essential and appropriate: deficit spending cannot go on for ever, and by boosting firms' and households' confidence and lowering the risk premium on government debt, well-designed fiscal consolidation can actually boost growth. Jean-Claude Trichet, president of the European Central Bank, argues that fiscal thrift will increase private spending by reducing uncertainty about government tax policy and debt.

Both sides of this debate oversimplify their cases. Mr Krugman's crude Keynesianism underplays the link between firms' and households' behaviour and their expectations of future tax and spending policy. For example, firms across the rich world are hoarding cash. Their reluctance to invest may have more to do with regulatory, financial and fiscal uncertainty than weak consumer demand (see article). If governments address those worries, businesspeople may start spending.

The advocates of austerity exaggerate more dangerously still. They base their argument on cases in the 1990s, when countries such as Canada to Sweden cut their deficits and boomed. But in most of these instances interest rates fell sharply or the country's currency weakened. Those remedies are not available now: interest rates are already low and rich-country currencies cannot all depreciate at once. Without those cushions, fiscal austerity is not likely to boost growth.

The austerity fad is also distorting politicians' priorities. Many European governments, for instance, are fixated on cutting their deficits, when they should also be trying harder to shake up their labour and product markets. A new analysis by the IMF suggests that fiscal austerity coupled with structural reforms would yield far higher growth than austerity alone. In America the new deficit-focused climate is preventing politicians from passing a temporary (and sensible) fiscal stimulus package without inducing them to tackle the sources of the country's huge medium-term deficit by, for instance, reforming social security. The result probably won't be another Hooveresque Depression. But it could be a recovery that is weaker and slower than it should have been.