I just saw Ann Wagner, U.S. representative for Missouri’s 2nd congressional district on TV. First, she correctly pointed out “We can get more revenue is by growing the economy.” This isn’t a rare thing for a Republican to say, but it is correct. If you grow the economy, then more people will pay in taxes, and less will be unemployed and/or using government spending programs. That’s simply what happens when an economy grows (the opposite is also what happens when an economy shrinks). What she said next, though, is where a lot of Republicans get things wrong. Sometimes they get it wrong because they simply do not understand economics, but I think most of them just hope you don’t understand economics either. She continued with, “and the only way to do that is by reining in our spending.” I wanted to slam my head into the table when she said it. It’s utterly idiotic, and completely counter productive.
As I pointed out in my last post, which mainly dealt with government jobs, when you cut spending you cut someone else’s income. When the government cuts, they’re cutting directly into the profits of the private sector. The right does a lot of talk about how we should not become Greece, or not become Europe, but whenever they trot out this little line like Ann did, they are effectively telling us that we should in fact become Greece or Europe. Our media is not doing a good enough job at all in pointing out this hypocrisy. You see, when the recession hit, Europe did precisely what the Republicans are calling for. They enacted spending cuts, while the US as of now largely did not. While we didn’t spend enough to get us out of the recession quickly, we haven’t fallen into the same trap that Europe has. In 2011 alone, “Greece’s austerity package amounted to 11.1 percent of GDP. Spain’s was 3.1 percent. Great Britain’s was 2 percent. Italy’s was 1.8 percent.”
So what happened in Europe? For one, the recession deepened. “The euro zone’s fourth-largest economy, [Spain] which is grappling with the collapse of a decadelong housing boom, fell into its second recession in three years toward the end of 2011.” Spanish unemployment is 26%, and reaches as high as 55% for those under 25 years old. Greece is also struggling with 26% unemployment. The Eurozone as a whole has a 11.8% unemployment rate as of November 2012. Things have become so bad, some in Europe are being forced to pick through the garbages in order to eat.
The IMF also “found that budget cutbacks are much more damaging to economies recovering from recession than has been previously believed. The reason is that with interest rates stuck near zero, there is no room to lower them when fiscal policy is tightened, and thus no way to offset the pain of budget cutbacks.” It also said that these sorts of spending cuts in depressed economies act to deflate confidence, and that’s precisely because they can quickly decelerate economic growth or even at times turn it into an economic decline.
People will now point to Greece’s financial troubles beforehand and say that’s partially why they’re in the situation they’re in. That may be so, but as I just pointed out the unemployment of Greece isn’t so different from that of places like Spain. Was Spain in huge financial troubles before the recession? As Brad Plumer points out over at Wonkblog, “Other now-troubled European countries, such as Spain and Ireland, were acting quite responsibly, budget-wise, before the 2007 recession hit. Their deficits then soared because their housing bubbles burst and their economies collapsed.” Spain in particular had a budget surplus and low debt before the recession hit. And so, it wasn’t some irresponsible socialist spending that led Europe to have to do this. No, it was the collapse of a capitalist system that pushed them, and it was the Eurozone rules that constrained them.
As Krugman points out, the UK issues its own currency, and is not constrained by the same Eurozone rules. Despite this, it followed the path of austerity. Before austerity it was looking like it would recover (slowly), like the US. After austerity, though, the economy stalled. When they came to power in 2010, Osborne and Cameron instituted unprecedented austerity measures. By 2014 they will have cut more than 10% of overall spending by U.K. government departments. Because of all this, the U.K. economy is experiencing either a double or perhaps a triple dip recession, depending on how you categorize it.
What about the debt? Surely cutting spending means they at least have less debt, right? Wrong. As pointed out by the Wall Street Journal, “the ratio of debt to gross domestic product will be around 5 percentage points higher in both the U.K. and the euro zone because of the spending cuts and tax rises pursued from 2011 to 2013. Not only would growth have been higher if such policies had not been pursued, but debt-to-GDP ratios would have been lower.” In the U.K. this year, “government borrowing appears on course to be higher than planned for the current year, as austerity measures have failed to reduce government spending and weak economic growth has resulted in disappointing tax revenues,” said economist Chris Williamson. And after stripping out a one-time transfer of the Royal Mail’s pension fund, “public borrowing is about 7 per cent higher than a year ago as the government’s plan to balance the books remains off track.”
As I said, though, a lot of these countries are constrained by Eurozone rules. They gave up their monetary sovereignty and just don’t have the tools that we do. One of the reasons the US can tackle problems so well is because of the system we have of linking our member states. As pointed out by The Atlantic, Mississippi is like our Greece. It doesn’t make us all crash, though, because some of our stronger economic states subsidize some of the weaker ones. It doesn’t bother us because we have the freedom to move about our country, and we value the culture and history of our United States. We also don’t mind because, largely, this system has worked, whereas the Eurozone system obviously has not. We survive because we have a stronger union that looks out for the weaker ones amongst us.
So, when you enact spending cuts, the economy dips, and the debt doesn’t even go down with it. These are the real world economic effects of austerity. You can’t escape this. The US doesn’t have to go down this road. We are not constrained by the rules of a union. We are empowered by ours. We don’t have to hurt our poor. We don’t have to cut government jobs. Not only do we not have to, we shouldn’t want to. The right literally can’t find one single austerity success story throughout a portion of the world that has almost all implemented it. If cutting spending really works and could really “grow the economy,” as Representative Wagner puts it, then why hasn’t it happened anywhere?
Don’t listen to idiots like Rand Paul, either, when they say that “Sequester Barely Cuts Any Icing Off The Top Of The Cake.” No, Rand, the notion that’s been disproven is austerity. If cutting spending is “precisely what you should do to spur the economy,” then why does absolutely none of the evidence point to this? What “cake,” is Mr. Paul exactly talking about? I don’t think it’s a crazy notion to think that people like him on the right don’t necessarily want to get us back on fiscal track (whatever that means) so much as they literally want to cut things like Social Security and programs for our poor and middle class. That’s the cake they’re talking about cutting. They just can’t say that, because people largely like these programs and want to keep them. In fact, 8 in 10 think it’s critical to support Social Security, even if it would mean higher taxes. So, they continue to pretend we have no idea how economics works and the evidence that exists right now over in Europe. They continue to insist that all we have to do is cut off our nose to spite our face and after that we’ll look just fine! They’re not even trying to get us to believe in their ideology. They’re just outright trying to trick us into enacting it.
I hate to keep bringing up Krugman all the time, but he seems to be the loudest in trying to bring this sort of thing up. He’s absolutely correct in calling what’s happened “an unethical experimentation on human beings.” The shocking about all this austerity in Europe is that not only are we experimenting on the most needy of our nations’ people, but we’re not even using all the hard data we’ve collected from it all!