February 19, 2012

Learning from Greece and Europe

As much as I disagree with most of what the Republican Party has been saying about restoring our economy, they are right about one thing:

We need to learn from Europe's mistakes, to avoid the kind of economic upheaval they're having in Greece.

But the lessons to be learned are not what the Republicans predicted.
Demanding rigid austerity from them as the price of European support has lengthened and deepened their recessions. It has made their debts harder, not easier, to pay off.

This is not an issue of philosophical debate. The numbers are in.
- New York Times Editorial, February 17, 2012.
As the reports roll in from across Europe, again and again we hear that steep spending cuts have not only not improved the target economies; they've made them worse.
Portugal is a debtor nation that has done everything that the European Union and the International Monetary Fund have asked it to, in exchange for the 78 billion euro (about $103 billion) bailout Lisbon received last May.

And yet, by the broadest measure of a country’s ability to repay its debts, Portugal is going deeper into the hole.
Vitor Gaspar, the Portuguese finance minister... has reduced the government’s budget deficit by more than one-third so far, through tough measures that include cuts in spending and wages, pension rollbacks and tax increases.

But many economists say those moves are also a reason Portugal’s economy shrank by 1.5 percent in 2011 and is expected to contract by 3 percent this year.
-Portugal's Debt Efforts May Be Warning for Greece, NYT, Feb 14 2012
Republicans like to chant that Reagan turned our economy down by cutting our taxes.  But they always seem to forget that he also increased spending.  The tax cut fought inflation, but it was the spending that stimulated our economy then.

Now read this next bit, and notice the bit I emphasized:
If Portugal and other European debtors find it increasingly difficult to pay off their creditors because of slow or no growth, some experts predict they, too, might eventually need to negotiate debt write-downs. That was how things played out in Latin America in the 1980s, once it became clear that the I.M.F.’s relentless austerity push was impeding the growth that countries needed to pay down debt.
-Portugal's Debt Efforts May Be Warning for Greece, NYT, Feb 14 2012
This isn't the first time that austerity measures caused economic collapse; these are lessons we should have learned thirty years ago!

The lesson to be learned is that simply cutting the budget does not result in a healthy economy.  That's not to say that we shouldn't keep an eye on our spending; we should make sure that we're getting return on value for every dollar spent.  But we shouldn't believe that we can budget-cut our economic troubles away when that approach hasn't worked anywhere else.

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