For nearly a year, I've been asking if someone, anyone, can point to any country, anywhere, that has used austerity successfully to end economic distress. So far no one has been able to answer my question. Yet today we are facing a very real possibility that we will be see austerity become the remedy of choice on January 20, 2012, if Mitt Romney becomes the POTUS. Should that happen, my assumption is that the Republicans will continue to hold the House of Representatives and take the Senate as well. If that is the case, the policies of the GOP, specifically the Ryan Budget that passed the House of Representatives, will become the law of the land. What does that mean?
Rather than dwell on their individual proposals, let me place them in context. These policies are typical of the austerity programs that have been implemented in Europe, except that the Europeans have increased taxes to make sure everyone pays their fair share. So how has it gone across the pond? Has austerity worked?
The U.K. turned to the Tories who implemented the austerity régime there. At the time, the U.K. was growing very slowly, but its debt was manageable. So how has it been going? Thanks to austerity, the U.K. announced last week that it has fallen back into the recession from which it had emerged. The national debt has ballooned. The unemployment rate has shot up. That sounds like a good result, don't you think?
Spain was running a budget surplus when it took the austerity route. Today it is sitting on a significant national debt. Unemployment has surged, and economic growth has come to a stop. Another strong positive result for austerity, eh?
Those who oppose President Obama's policies always like to say that we are headed to becoming another Greece. While there are any number or reasons why the United States is not heading in that direction, like, for instance, that there is a ready market for U.S. debt instruments at record low interests, in the area of 1%, the results of austerity should be instructive. Not only is Greece's debt increasing, but the unemployment rate is higher and there is massive civil unrest.
Ireland is experiencing the same negative affects as the other poster children for austerity. In our own history we have seen the same thing. In the last quarter of the 19th century, austerity measures gave the country its longest period of economic distress bookended by the panic of 1873 and the panic of 1893. Herbert Hoover's reaction to the crash of 1929 was austerity that gave us Great Depression.
With all this evidence of the effects of austerity, why do the Republicans want to implement it in the United States now? I have no idea.
The U.K. turned to the Tories who implemented the austerity régime there. At the time, the U.K. was growing very slowly, but its debt was manageable. So how has it been going? Thanks to austerity, the U.K. announced last week that it has fallen back into the recession from which it had emerged. The national debt has ballooned. The unemployment rate has shot up. That sounds like a good result, don't you think?
Spain was running a budget surplus when it took the austerity route. Today it is sitting on a significant national debt. Unemployment has surged, and economic growth has come to a stop. Another strong positive result for austerity, eh?
Those who oppose President Obama's policies always like to say that we are headed to becoming another Greece. While there are any number or reasons why the United States is not heading in that direction, like, for instance, that there is a ready market for U.S. debt instruments at record low interests, in the area of 1%, the results of austerity should be instructive. Not only is Greece's debt increasing, but the unemployment rate is higher and there is massive civil unrest.
Ireland is experiencing the same negative affects as the other poster children for austerity. In our own history we have seen the same thing. In the last quarter of the 19th century, austerity measures gave the country its longest period of economic distress bookended by the panic of 1873 and the panic of 1893. Herbert Hoover's reaction to the crash of 1929 was austerity that gave us Great Depression.
With all this evidence of the effects of austerity, why do the Republicans want to implement it in the United States now? I have no idea.
I was at the 92Y last night (April 29th) and saw Jeff Greenfield interview Paul Krugman, who agrees with you 100%, although he is probably unaware that he does.
ReplyDeleteAusterity is the wrong policy; you need people spending money, by giving them jobs, like fixing and improving or building the infrastructure (as China did with its stimulus program), or extending unemployment benefits, or doing anything that will put money in their hands that they will spend. NOT giving a tax break to the rich who will not spend the money for consumables which create jobs.
He pointed to only two countries (aside from China) who are democracies who were able to manage themselves out of the recession -- Iceland and South Korea. (NOTE: Iceland government did not have the money to bail out their banks and left them to work it out themselves. Instead they pumped money into their economy to create jobs. Remember the joke about 4 years ago--- What is the capital of Iceland? Answer-- About $25.)
He is afraid the political turmoil in Greece, because of the austerity policies, will make it withdraw from the EU which might prompt others who are not far behind them economically, like Spain and Portugal and Ireland, to also leave and then the domino effect will be to set the EU back 10 years with no hope of a quick redo. He favors the valuable benefits of a united economic Europe and this will destroy all the work of the past 20 years.
Ireland is a great example of an austerity program that was accepted by the people, but failed to help the country. The austerity program caused a pull back of business progress, more layoffs and unemployment, and the economy sank from its previous healthy state. Outside investors pulled back because the economy was no longer healthy. And there they sit.
As to the national debt being equal to GDP, he says "So what?" For most of the 20th century England's debt was equal to its GDP and they have not failed. For the past 10 or 12 years Japan's debt has been equal to, or exceeding, its GDP, and each year some economists predict they will collapse economically, but they don't. Having too much debt is not a good thing, but it is preferable to large unemployment.
Extending and enlarging unemployment payments is not the best way to get money into the economy but it is better than doing nothing. To those who complain that these benefits will breed a reluctance to find work and push the economy toward inflation., he replies that such will only raise the level of unemployment where inflationary pressures will begin to be seen. Thus, if inflationary pressure will evidence themselves at unemployment of 5%, extending and enlarging these payment may bring about inflationary pressures when you reach 6% unemployment, but will not cause instant inflation..
As you state, all the austerity programs of the EU countries have failed to help their economies, with most resulting in larger unemployment and increases in debt. Jobs have to be created and much preferred over unemployment benefits. Our stimulus program failed in part because there were not enough "shovel ready" projects for the money to go to work. Development regulations and other regulations (Greenfield gave the example of people arriving to help with Katrina who were prevented from going in to help because they did not have the required diversity and sensitivity training) have prevented many projects from starting when originally visualized. But now there are plenty of projects that are "shovel ready", or so Krugman says.
Personally, I think we need a large infrastructure repair and improvement program which will create jobs. As to the Republicans, all I know is what they are against; they have never (not one candidate) said what they are for, what programs will they push. By inference we can conclude that they will not aid in the push for programs that will create jobs; they will impose austerity, tax breaks for the rich justified by their faulty trickle down theory, and hoped for investment opportunities. This will not help us, and it may take a long time for us to reverse the damage that they will cause.
ReplyDeleteBrian