Monday, April 25, 2011

Is an austerity diet the answer?

The Bigger Picture
Published on April 1st 2011 in Metro Éireann By Charles Laffiteau

When Senate Republicans in last year’s Congress refused to allow a vote on President Obama’s 2011 federal government budget they essentially set the stage for the political theatrics currently on display in Washington DC. They were hoping that their party would gain control of the US House of Representatives in the mid-term elections and increase their leverage on President Obama. But despite their success in achieving this objective, at least three of those same Senate Republicans subsequently voted against the ridiculous spending bill their Republican colleagues in the House of Representatives sent them last month.
So given the fact that they can’t get the support of other Republicans in the Senate for their budget cutting proposals, what explains the irresponsible political behavior of House Republicans in continuing to push for spending cuts that have no hope of becoming law? I believe the political stew Republicans have been dining on the past two years is the culprit.
For starters, many Congressional Republicans have convinced themselves that the latest government budget fad diet called ‘German austerity’ is the answer for our national government’s ‘obesity’. Then to make it more palatable to Republicans who doubt the wisdom of this fad diet, Tea Party activists have liberally sprinkled it with their homegrown flavorings of fear that Republicans who don’t adhere to this diet will lose their seats in the next Congress. The final ingredient in this stew is the rather tasty prospect of even more power for Republicans in Congress if they succeed in beating Obama at the polls in 2012.
As a lifelong Republican and economic conservative, I can understand why so many Republicans think the German austerity diet sounds so appealing. But even though the idea of balancing our national government’s budget holds great emotional appeal for me, I believe the rationale for doing so must also be based on realistic economic principles; not emotions.
To that end, I will now discuss some of the fallacies that I believe underlie the myth that the German austerity diet is the best way to cure the economic ills which currently bedevil America as well as most of the world’s other more developed nations.
This myth had its roots in the economic recovery Germany experienced during the first half of last year. Commentators here in Europe and much of the rest of the world cited this as evidence that the more modest economic stimulus measures Germany had implemented in 2009 were the answer to the economic malaise that still gripped America and most other countries in Europe.
But ever since Germany’s growth slowed sharply in the second half of last year those same commentators have been noticeably silent. The cold hard economic facts are that once Germany’s modest economic stimulus measures had run their course, the German economy stagnated. As a result, Germany’s economic output is still well below the level it achieved before the 2008 financial meltdown and the onset of the 2009 global economic recession.
But the current economic situation in the UK, another country that adopted the German austerity diet, is even worse than that in Germany. The UK is actually now on the brink of experiencing the dreaded ‘double dip’ recession, thanks in large part to the Tory government’s tax increases that will soon be exacerbated by even larger spending cuts.
Furthermore, the history of post recession austerity measures underscores the fallacy of trying to move quickly to balance a government’s books. In his first presidential election Franklin Roosevelt repeatedly called for a balanced federal budget so, following his re-election, President Roosevelt moved to balance the government’s budget in 1937. This lead to another economic recession in an economy that was still weak from the Great Depression and what actually ended up saving the US economy was the industrial growth caused by World War II.
But in my next column I’ll discuss some more prudent economic alternatives than another world war.

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