Published on March 6th, 2013 | by Jeremy Bloom1
Why are we cutting spending NOW? This is just stupid.
What should be happening right now in the US is INVESTMENT. Instead, everybody in Washington – all the Very Serious People – are convinced that our true crisis is spending… because sometime 25 years down the road or so we will run out of money.
Let me repeat: This is just STUPID.
As Nobel Laureate Paul Krugman has pointed out, the costs to the government of borrowing right now are NEGATIVE. And the costs of NOT investing are substantial:
- We are falling behind China and Europe in the businesses that are driving future growth, including clean energy. Stupid.
- Our infrastructure is FALLING APART and must be repaired. If we don’t repair it now – when costs are low – we must repair it later, when costs are high. Stupid.
- By cutting spending now, we are CUTTING GROWTH. That is growth that we will never be able to recapture. Everyone, even the GOP, admits that the sequester will cut growth NOW. The GOP has a wonderful faith-based belief that somehow the confidence fairly will make LATER growth so amazingly wonderful that it will make up for the lack of growth now. You decide for yourself if that is wonderful faith – or stupid.
But before you decide which it is, what do you say we look at that pesky thing… evidence?
After all, this isn’t some totally new experiment that’s never been tried before. They’re trying it in Europe RIGHT NOW.
So how’s it been working out? Jeff Madrick lays out the facts:
We need not go back to the Great Depression to understand the dangers of austerity and deficit mania. In our own time, the abysmal performance of austerity-bound European economies have demonstrated the same problem. Take the case of Britain. After the recent global economic crisis, David Cameron, Britain’s Conservative Prime Minister, and George Osborne, his absurdly overconfident chancellor of the Exchequer, repudiated Keynes’ central insight. Two years ago, with the British economy just coming out of recession, these men raised taxes and cut social spending in order to reduce the British deficit and, they claimed, enable newly confident businesses to use all that savings to invest and re-charge the economy. It was pure anti-Keynesianism. The chancellor promised that the budget deficit would fall nicely as a percent of gross domestic product. Thus, a path would be cleared for more capital investment by otherwise “crowded out” private companies.
None of that has come close to happening. Britain is now probably entering its third recession since 2009. With such slow growth, tax revenue is dismal, and the country’s deficit, excluding interest payments, remains the highest, by percentage of GDP, of any European nation. And what of all that promised investment that was predicted? Not only did a chunk of new savings fail to materialize, capital injections in the economy have been weak. They contributed only 0.4 percent to economic growth in 2012, half of the government’s forecast. As for exports, which the government also insisted would rise as the value of the pound fell, the nation’s current account deficit, the excess of its imports (plus investment income) over exports, is now no better than in 2009.
Despite these dismal results, the British citizenry apparently still think the policies are sensible. They have not thrown Cameron and Osborne out. But what is driving Britain’s growth is consumer spending and government spending, not business investment and exports as the austerity advocates forecast. And consumer spending alone is just not strong enough to produce adequate growth. It is Keynes who was right, not Osborne. Meanwhile, economies in Europe’s southern tier, including Spain, Portugal, Italy, and Greece, are mired in recession.
So why are we cutting? And cutting? And cutting? After all, the GOP members of the House and Senate aren’t emo teenagers with self-image problems.
There is one possible answer. They insist on cutting because they WANT the US economy to tank. They WANT America to fail. So that two years from now they can once again run on a platform, not of their own horrific failed policies (that have been proven time and time again to be an incredibly effictive anchor around the necks of GOP candidates), but of “Obama’s policies have failed”.