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It's starting to look as if austerity undermines economic growth and leads to recessions.
The European economy shrank for a second quarter in a row, according to official data released Thursday, fulfilling a common definition of recession and signaling that the region still faces a long road to recovery.
Gross domestic product in the euro zone fell 0.1 percent in the three months through September compared to the previous quarter, according to Eurostat, the European Union statistics agency. The euro zone economy improved slightly from the second quarter, when it contracted by 0.2 percent. But it was the fourth quarter in a row of zero growth or worse.
The AP's report added that continental fears are growing that "at a time of high unemployment in many countries, there are fears that the recession will deepen, and make the debt crisis even more difficult to handle."
Domestically, the right looks at these developments and says, "See? Europe has debt crises, which is keeping Eurozone in a recession, and if we want to avoid the same fate, we need to reduce our own debt."
But the repetition of this conservative message doesn't make it less misguided. The United States doesn't have a debt crisis -- we have low inflation, low interest rates, and investors around the globe desperate to loan us money. Indeed, if there's a lesson to be learned about the Eurozone recession it's that austerity is exactly the wrong course of action given the current circumstances.
As Matt Yglesias explained this morning, "The idea of austerity is that you need to be austere. That as a society you need to squelch consumption (with higher taxes, lower social welfare payments, and lower government salaries) in order to generate the capacity to repay external debts. The fear of self-defeating austerity is that these efforts will actually serve to reduce incomes, which makes debt repayment harder. And that's exactly what we're seeing both in the eurozone writ large and especially in the key countries."
Conservatives in the U.S. believe austerity -- taking capital out of the economy, depressing demand -- would boost the domestic economy. Europe should represent a warning of how wrong they are.
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Why are the supporters of austerity oblivious to this dynamic? Krugman for Treasury Secretary!!!
Best I can tell, it's because PTSD over the Weimer inflation is a genetic condition in Germany.
At least here in the U.S., they *aren't* oblivious. They know full well that rampant austerity turns the 99% into a permanent underclass at the mercy of the upper 1%. They are *deliberately* working to turn our society into that kind of Dickensian dystopia. Because, you see, they're part of that upper 1% that the rest of us would be enslaved to.
Re: Krugman at Treasury, my suggestion yesterday which I also heard on TRMS or Last Word last night as well.
@stevebenen, don't try to confuse the debate with facts.
Try this on for size... Europe has run out of other people's money. Austerity isn't about growth it's about paying debts. Believe it or not, some people want to be paid what they are owed.
No. Last year 61% of bonds sold were bought by the Fed. AKA, printing money.
http://online.wsj.com/article/SB10001424052702304450004577279754275393064.html
So, austerity doesn't work, then? Quelle surprise! I'm beginning to think this trickle-down-economics thingy is also a scam...
Euro elites are in the thrall of the Austrian School of late and are just as globalist and multinational as American business elites about off shoring and employing the lowest cost labor on the planet. They don't need to care about the prospects of their working class countrymen as they have cheaper alternatives and sell their products world wide and not just in their "home" markets. It is the race to the bottom writ large. They vilify Keynes as part of an Anglo-American cabal.
Keep in mind that our economic elite has convinced the Tea Partiers that austerity is the best course as well.
This is what happens when you let the bankers run the government. They know the price of everything and the value of nothing. "cutting your way to prosperity" has never worked.
Hey Republicans in the House - just more empirical evidence you need to pass the Senate Bill that would extend tax cuts to 98% of Americans before the December 31st deadline! The next recession, just like Bush's recession, will be on you and your refusal to see the flaws within, and then, to abandon your insistence of Trickle Down (Tinkle On) economics!
Pass the Senate Bill Now! -Kevo
We have ALWAYS known that austerity not only doesn't work, it actually makes things far worse. Read "The Shock Doctrine" for a good rundown of what austerity did to Latin America and Eastern Europe over the past half century. Friedman's economic theories were put into place, (often through the use of the military), which made drastic cuts in government spending, selling of government-owned businesses to the ultra rich at fire sale prices, and huge increases in the cost of basic necessities such as food and housing. The reason so many think austerity is great is because they don't understand the difference between personal finances and government finances. If I cut my spending to suit my income, no one really suffers, (except maybe me). On the other hand, when government cuts spending, there is a huge ripple effect, as government workers lose their jobs, workers that support government programs such as defense contractors, lose their jobs. As those people go on unemployment, their spending on everything from housing to food to clothing also is cut back, affecting lots of other businesses, which then ripples down to them laying off workers and cutting spending. It is a vicious cycle once it starts. Now we have more examples from Europe about the foolishness of austerity in solving an economic slowdown, but I'm sure repubs will continue to ignore reality. Facts are only facts if they come from Fox or Rush.
Austerity never works. It just makes people angry. It always seems to middle and poor that pays the price. I really don't have a solution. I wish I did. I would put it out there. Like Thomas Edison said, "I know a thousand things that don't work." Trickle down and Austerity.
Given the Republican widespread Euro-phobia, Democrats should act horrified at the prospect of "European style austerity" every time Republicans propose cutting spending.
The biggest difference between today's GOTP and that of Raygun, at least Raygun was enough of a realist to raise taxes when he saw things weren't going well, this bunch are way too far out in left field to even recognize this fact!
Psst, GOTP just a tip you want to stop WELFARE - stop the subsidies to BIG OIL/COAL/PHARMA/Ag and start TAXING the RICH & CORPORATE!! Invest that money thru an updated WPA to rebuild our infrastructure! See, that's not trickle down, it's called circulation!
Enlightening... I guess when you graduate harvard with a degree in philosphy you are automatically considered an economist and able to author an authoritative opinion on the economic ramifications of austerity.
Not really, SnrDQ -- It's just that working on a graduate degree often means lots of reading and lots of learning thereby -- leading to an ability to synthesize the writings of well-seasoned and -published economists and judge credibly among them. Sometimes wrongly, sometimes correctly.
But that wasn't your point, was it? It's one more anti-intellectual barb, just like others of your ilk are so happy to deliver. Please troll elsewhere.
P.S. One graduates FROM Harvard or elsewhere. One does not graduate (verb) Harvard (object). Harvard might not appreciate my doing so to them. Besides, I graduated with my doctorate from the University of Arizona.
Thus the wildcat avatar?
In order to effectively judge the credibility of well seasoned and published economists (or any other discipline for that matter) is it necessary to have the appropriate knowledge, skill, experience, training and education in that field in order to offer an opinion or otherwise...
Only if one considers wonky columns by Ph.D.-level economists fodder only for their Ph.D. friends, too thick for the general reader. If the NYT wants to sell papers, they're not! Most of what one reads, even in the NYT, is accessible to a reasonably well-read person lacking ideological blinders. One doesn't have to read without judgment, just without wholesale pre-judgment.
Most history books are equally accessible, as are most books on science. But I wouldn't expect a college grad in either area to absorb an article in the NEJM written by a bunch of bio-physical-med Ph.D./M.D. types. Nor do most of us pore over the professional (refereed) articles by Stiglitz, et al.
Doesn't mean we don't try, every so often.
(wildcat, indeed! --heh, heh)
And yes, while intended to be an anti-intellectual barb in some respects it also was criticism aimed towards the underlying assumption of this column that countries in the euro zone somehow did not consider other options rather decided to proceed with austerity measures from onset of the problem.
Quixote: Based on your user name, I'm going to assume you're just messing around with us. After all, you're "criticizing" people for pointing to the historical record, which certainly qualifies as tilting at windmills. The European Union *did* just rush straight to austerity without considering the consequences or other options. This isn't an opinion, it is an easily verifiable fact. But you already know that, because you're just messing with us.
Don....not having a degree in economics certainly hasn't stopped folks like Boehner, Cantor, McConnell and other repubs from coming up with economic plans. I guarantee you that Reagan didn't have a degree in economics, but that didn't stop him from imposing supply side, trickle down economics, a scam that still is the heart of repub economics, despite 3 decades of proof that it is not only an abject failure, but is actually harmful to the economy and the nation. By your reckoning, we can't have just one president, because we need one with a degree in economics to handle the economy, another with a degree in each scientific field to deal with science and research issues, a MD to deal with health issues, a retired general to deal with defense...the list goes on and on. Obviously that isn't reasonable or feasible, which is why the president relies on experts to inform him and to help him make decisions. In the same way, each of us relies on experts in fields like economics to inform our decisions. Of course, we can't just rely on experts to help, because as every trial lawyer knows, there are experts who will disagree with other experts. That's where common sense comes in. You look at as many examples as possible of where similar policies were enacted, and see the results. The results of trickle down economics and the results of austerity are uniformly bad. In the case of austerity, make that universally catastrophic. Europe was told that if they enacted austerity measures, the confidence fairy would visit all the banks and businesses, and the economy would miraculously heal itself. By now, it is obvious that there is no confidence fairy, and to persist in believing in one is to ignore reality. We don't need austerity budgets here...unless you think 20-30% unemployment, tripled food and housing costs, and violent social upheaval are things this country really needs.
I really hope that the faction of the Republican party that called for "Cut, Cap, and Balance" sees that this type of radical correction is destructive. This is a 20yr problem that will require a gradual balanced approach so that the economy is not shocked back into a recession. I want to hear this from both sides. Taxes must go up, entitlements must be reformed, but not overnight.
Austerity does work - unless you care about growth and jobs.
I wonder what the stats are on raising the retirement age for the youngest citizens. It was on TRMS that I was reminded that retirement was originally designed to kick in right after you die. It hasn't been adjusted for life expectancy, so course it's out of whack. Would we gain much by raising the age, say, one year for a 21 year old? What about 10 years for a 21 year old? I'm 55 and I'm expected to live until 95, according to standard retirement planning.
http://thinkprogress.org/economy/2012/11/15/1197011/income-inequality-state-report/
This in itself can just right about say Republicans and their trickle down economics NEVER worked and now the economy needs to go back to Clinton's tax rates asap if we don't want to become like Europe.
This is yet ANOTHER left-wing myth. There hasn't been any austerity in Europe. In fact, England and France have actually been spending more money. And to say that austerity de facto doesn't work has never been substantiated. During the Depression of 1920-21, Harding cut federal spending IN HALF and in two years we had reduced the unemployment rate from 12% to 2%. And in the '90s, both Sweden and Canada greatly reduced their governments' share of GDP and both countries flourished. Compare this to the pathetic record of Keynesianism; Hoover, FDR, Bush 2, Obama, and Japan in the '90s and, man, do you people really have a lot of chutzpah. http://www.usnews.com/opinion/articles/2012/06/01/the-myth-of-european-austerity
Sorry, 1920-21 was a recession, not a depression. It was caused basically by two factors: the release of military personnel from active duty, thus flooding the labor market and the cancelling of government contracts for military equiment. The soldiers-turned-civilians did not receive any unemployment benefits as did those after WWII. I fact, there were no unemployment benefits available to anyone.
Nor does the actions of Canada and Sweden in the 1990s support your thesis. During a time of economic expansion is exactly when governments should, if they're going to, reduce spending. Thus, the growth in the economies of those two countries was more than enough to balance the cuts made by their respective governments.
Your denial about the UK and France not embracing austerity merely shows you refuse to deal with facts. A few hours spent on the BBC website would provide them.
Somehow I doubt you'll visit it...
Sorry, Pal, but the 12% unemployment rate of 1920 was a higher rate of unemployment than the first 2 years of the Great Depression (which didn't really became "great" until Hoover raised taxes 152%, spent like a drunken sailor, advanced protectionism, and FDR engaged in all of his asinine stupidity) and my examples of Sweden and Canada DID come during a time of economic downturn. As did Estonia's (one of the few European countries that did engage in austerity) and they're growing at 7% (compared to Obama's anemic 1.5%). You really need to start getting your information from a more diversified source.
And I get such an absolute kick out of you Keynesians. WW1 put us into a depression and WW2 got us out of one. You're insane!...As for hard facts, I suggest that you go to Eurostat and just take a look at the charts. The only non-Baltic European country that actually cut spending (as opposed to merely cutting the rate of growth) after 2008 was Greece, and that was only about 3% (1/17th the amount that Harding cut in 1921). I also suggest that you look at the tax-rates in these countries. One could most assuredly argue that it's the stifling taxation and not the miniscule cutbacks that are causing the problems there....Oh, and, yes, thank you for helping me make my point. The fact that the soldiers in WW1 DIDN'T receive unemployment compensation (that wonderful stimulus package) is an even more powerful argument against the idiotic policies of Hoover, FDR, Bush 2, Obama, and the Japanese. Just sayin'. Read Bastiat and get your nose out of MSNBC.
We are fortunate that President Obama is our leader. He is right about using a balanced approach for improving our economy and moving forward. The GOP are misrepresenting the application of austerity in Europe. They say that the President is applying the European economic policies when in reality that is what they themselves want to do.
Thanks for the example Europe. Now we know not to let Repubs put us in the same hole.