Austerity is ushering in a global recession
When the world's economic powers are slipping toward a global recession, tighter austerity is not the answer.
A demonstrator holds a banner that reads "Let them govern the workers and not the banker" during a protest against the government's response to the euro zone debt crisis outside the Parliament in Rome earlier this month. The government has come under increasing criticism of its failure to provide any detail of austerity plans.
Tony Gentile/Reuters
Not only is the United States slouching toward a double dip, but so is Europe. New data out today show even Europe’s strongest core economies – Germany, France, and the Netherlands – slowing to a crawl.
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Robert is chancellor’s professor of public policy at the University of California at Berkeley. He has served in three national administrations, most recently as secretary of labor under President Clinton. Time Magazine named him one of the 10 most effective cabinet secretaries of the last century. He has written 13 books, including “The Work of Nations,” his latest best-seller “Aftershock: The Next Economy and America’s Future," and a new e-book, “Beyond Outrage.” He is also a founding editor of the American Prospect magazine and chairman of Common Cause.
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We’re on the cusp of a global recession.
Policy makers be warned: Austerity is the wrong medicine.
We all know about the weaknesses in Europe’s “periphery” – Greece, Ireland, Spain, Portugal, and Italy. But the drop in Europe’s core is dizzying.
Germany grew at an annualized rate of just half a percent last quarter, down from 5.5 percent in the first quarter of the year. France didn’t grow at all.
What’s going on in Europe’s core? Partly it’s a loss of confidence due to debt crises in the periphery. But that’s hardly all.
Europe depends on exports – especially to Asia, India, Latin America, and the United States. But exports to China and other emerging markets have been dropping. China, worried about inflation, has pulled in the reins on its sizzling economy. Brazil has been pulling back as well.
And as the United States economy sputters, exports to America have been slowing.
But chalk up a big part of Europe’s slowdown to the politics and economics of austerity. Europe – including Britain – have turned John Maynard Keynes on his head. They’ve been cutting public spending just when they should be spending more to counteract slowing private spending.
The United States has been moving in the same bizarre direction. Cutbacks by state and local governments have all but negated the federal government’s original stimulus, and no one in Washington is talking seriously about a second. The pitiful showdown over increasing the debt limit has produced the opposite: a Rube-Goldberg-like process for capping spending rather than increasing it, and a public that’s being sold the Republican lie that less government spending means more jobs.
Yes, governments on both sides of the Atlantic are deeply in debt. But policy makers on both sides seem to have forgotten that economic growth is the most important tonic.
Public debt has meaning only in relation to a nation’s GDP. When more people are working, more companies are profiting, and economies are expanding, revenues pour into national treasuries.
