I was reading Paul Krugman’s column in the New York Times this morning and I started thinking. The Republicans accuse President Obama of trying to make us more like European Socialists, but in reality it is they who want to make us European. Think about it a minute.
Last week the European Commission confirmed what everyone suspected: the economies it surveys are shrinking, not growing. It’s not an official recession yet, but the only real question is how deep the downturn will be.
And this downturn is hitting nations that have never recovered from the last recession. For all America’s troubles, its gross domestic product has finally surpassed its pre-crisis peak; Europe’s has not. And some nations are suffering Great Depression-level pain: Greece and Ireland have had double-digit declines in output, Spain has 23 percent unemployment, Britain’s slump has now gone on longer than its slump in the 1930s.
Worse yet, European leaders — and quite a few influential players here — are still wedded to the economic doctrine responsible for this disaster.
What is that doctrine? Basically you gut the retirement system, layoff workers, cut wages, and increase taxes. Krugman puts it this way
Specifically, in early 2010 austerity economics — the insistence that governments should slash spending even in the face of high unemployment — became all the rage in European capitals. The doctrine asserted that the direct negative effects of spending cuts on employment would be offset by changes in “confidence,” that savage spending cuts would lead to a surge in consumer and business spending, while nations failing to make such cuts would see capital flight and soaring interest rates. If this sounds to you like something Herbert Hoover might have said, you’re right: It does and he did.
Thomas Wright in a column published in the Financial Times brings in the Republicans. He points out the while Mitt Romney and Newt Gingrich want to deal immediately with the debt crisis – like the Europeans – Democrats and, in particular the President, believe that the debt is a long term issue and not a near term crisis.
I’m certainly not an expert, but it does appear that the European Hooverism is being largely driven by Germany. It will be interesting to see how that works out for them in the long run. What happens when the Greek economy continues to sink and they decide to pull out of the Euro?
Back to Krugman again.
Meanwhile, countries that didn’t jump on the austerity train — most notably, Japan and the United States — continue to have very low borrowing costs, defying the dire predictions of fiscal hawks.
So what will it take to convince the Pain Caucus, the people on both sides of the Atlantic who insist that we can cut our way to prosperity, that they are wrong?
After all, the usual suspects were quick to pronounce the idea of fiscal stimulus dead for all time after President Obama’s efforts failed to produce a quick fall in unemployment — even though many economists warned in advance that the stimulus was too small. Yet as far as I can tell, austerity is still considered responsible and necessary despite its catastrophic failure in practice.
The big question: Will the Congress pass the President’s new jobs bill? Or will it stick to slash, slash, slash? Increasing aid to local governments for police, fire, schools and programs like the Community Development Block Grant (CDBG) will prevent layoffs and enable hiring. Take CDBG for example. The City of Boston uses the funds to assist human services programs like afterschool and youth recreation, to assist small businesses and nonprofits make repairs and improvements, and help low income homeowners make repairs. There are rules about who can get assistance. Jobs are ceated when the business or nonprofit hires staff or a contractor to make repairs and improvements. Assistance to homeowners also creates jobs. Many other localities use CDBG to improve roads and sidewalks. I think everyone understand how keeping teachers, police, and firefighters employed helps local governments. It also increases the tax base for all levels of government and will eventually help lower the debt. Or am I being too simplistic?
Krugman ends this way
Look, I understand why influential people are reluctant to admit that policy ideas they thought reflected deep wisdom actually amounted to utter, destructive folly. But it’s time to put delusional beliefs about the virtues of austerity in a depressed economy behind us.
So it seems that it is really the Republicans who are more European with their belief in continued austerity. They need to look around and see what is happening in Europe and decide if they – and us – really want to be like them or continue to pursue the President’s American exceptionalism.