As Spain's economic crisis deepens and bond yields hit record highs, some are claiming that austerity has failed and that it's now time to turn to fiscal stimulus-based growth policies. A couple of years of deep spending cuts have only led Spain to a severe new downturn, with an estimated GDP fall of 1.8% in 2012, according to the April edition of the IMF's World Economic Outlook survey. Keynesians point to the contractionary spiral of cutting spending, which leads to less demand and, in turn, falls in GDP and employment.

Prime...