By JR on Friday, May 11, 2012
Which has it exactly the wrong way around if jobs are the issue
By mainstream media accounts, the presidential election in France and parliamentary elections in Greece on May 6 were overwhelming verdicts against “austerity” measures being implemented in Europe.
There is only one problem. It is a lie.
First off, austerity was never really tried. Not really. In France for example, according to Eurostat, annual expenditures have actually increased from €1.095 trillion to €1.118 trillion in 2011. In fact spending has increased every single year for the past decade. The debt there increased too from €1.932 trillion €1.987 trillion last year, just as it did every year before.
Real “austere”. The French spent more, and they borrowed more.
The deficit in France did decrease by about €34 billion in 2011, but that was largely because of a €56.6 billion surge in tax revenues. Again, there were no spending cuts. Zero.
Yet incoming socialist president François Hollande claimed after his victory over Nicolas Sarkozy that he would bring an end to this mythical austerity: “We will bring back Europe on a track for jobs, growth and the future… We’re no longer doomed to austerity.”
This is just a willful, purposeful distortion. What the heck is he talking about? Certainly not France.
If not France, then where?
In Italy and Spain, which have been dependent on tens of billions of cash infusions from the European Central Bank (ECB) to refinance their debts, cuts are hardly anywhere to be found either. In Spain, spending was cut by just €11 billion in 2011, a mere 2.3 percent reduction. In Italy, spending actually increased by €4.3 billion.
Both countries borrowed an additional €117 billion last year alone, raising their combined debts to €1.939 trillion. So, no austerity there. Just debt slaves.
Hollande might have been referring to the budgets of debt-strapped Ireland, Greece, and Portugal that have depended on over €290 billion of refinance loans from the European Financial Stability Facility (EFSF) and the International Monetary Fund (IMF).
But even there, the cuts are rather miniscule. In Greece, spending was cut by just €6.3 billion from 2010 levels. In Portugal, just €4.8 billion. Ireland only trimmed €2.2 billion off its 2009 levels, discounting its massive bank recapitalization in 2010 that blew up its budget by €25.7 billion.
The real point is that none of them even came close to balancing their budgets, with over €47 billion of combined deficits for 2011. More debt slaves.
Yet that is not stopping pundits like New York Times columnist and economist Paul Krugman from claiming otherwise, who said recently, “All this austerity is actually self-defeating. We’re seeing countries slash spending and drive their economies into a ditch.”
What austerity? These countries are all debt addicts. They’re not addressing the root of the problem. So, what should they do? Just borrow more?
Where’s the growth? Au contraire. Although all of this government largesse and excessive borrowing is supposed to be economic stimulus by Krugman’s account, these European economies are still stuck in a ditch. We tried the same thing here.
More than $3 trillion in fiscal and monetary stimulus since the financial crisis began — all to no avail. Well, some things did happen. We lost our AAA credit rating. And the debt is now larger than the entire economy.
But leaving that aside, based on analyses like Krugman’s, one might get the idea that the sovereign debt crisis in Europe was caused not by too much borrowing, but by not enough of it.
No, Krugman, Hollande, et al., this really is a debt crisis. The government’s demand for borrowing is so voracious that it far exceeds even the financial system’s capacity to lend. The crisis has reached such critical proportions these countries cannot find a way to grow their way out of it.
Hollande’s idea of “growth” is just more government spending and waste in a new wrapper — more education funding, more pensions, more health care, and other soft socialist programs. Because the illness is being misdiagnosed, the solutions being proposed only threaten to exacerbate the symptoms.
If France and other European countries were truly interested in growth, they’d be cutting taxes on business. Yet, Hollande wants a 75 percent levy on the “rich” and to increase social spending. Socialists like Hollande and their ilk do not wish to save the private sector — they want to soak it. Very well.
But this is a true delusion. There is no painless way to solve the systemic imbalances caused by bloated political promises made to dependent classes of citizens. The rich are not rich enough to pay for the level of government we have.
There is no easier, softer way to stop the bleeding. Spending must be cut, budgets balanced, and debts paid down. Europe is nowhere near that right now. Nobody is.
But that’s not all that must be done. To alleviate the painful transition — and make no mistake it will be painful — real fiscal reform must be accompanied by pro-growth policies.
Here in the U.S., systemic unemployment and slow growth in the private sector could be addressed on the supply side. Capital gains and corporate taxes could be eliminated to encourage investment in U.S. companies. Environmental regulations that increase the cost of energy and of doing business here could be rescinded.
We could let banks fail when they make bad investments, and restore a sound money system to ensure price stability and an end to “too big to fail”.