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.