Current account deficits of those magnitudes would simply become too unsustainable, if not impossible, as in the UK currently. To achieve balanced growth, rather than just recover a boom-bust cycle, we therefore need better longer-term savings rates. As in the late 1990s, this is going to require fiscal restraint, as a necessary self-control measure to enable the financing of stronger and more efficient investment.
The classic objection to this course is that fiscal consolidation slows growth, hurting revenues, which makes cut-backs self-defeating. However, there is good evidence that the composition of consolidation matters.20 Empirically, spending cuts tend to be more growth friendly than higher taxes.