The New Greek Myth

The Greek myth of “expansionary austerity” continues to be accepted as reality as the Greek government agrees to more cuts to try to avoid a default next month.

These new cuts (in the minimum wage, public sector employment, private sector salary increases) come as unemployment in Greece has reached 21%, and the economy continues to shrink.  Greece’s economy is expected to contract by about 6% this year, having already contracted almost 12% between 2009 and last year.

More cuts mean more unemployment, more contraction in the economy, and still higher deficits, which then lead to more cuts.

Greece needs policies that will promote growth, which in the short term means more government spending, not less.  Greece needs to leave the euro zone, which it never should have joined in the first place.

This is the counter-productive economic policy that we all thought the Great Depression had taught us to avoid.  It’s baaaaaaack!

And dumb decisions made in Athens today could bite President Obama in the tush on November 6.

The Myth of “Expansionary Austerity”

My favorite voice in the wilderness these days is Nobel-prize-winning economist Paul Krugman and his derision of “expansionary austerity,”* which he defines as “the notion that instead of increasing government spending to fight recessions, you should slash spending instead — and that this would lead to faster economic growth.”

He says that Britain, Spain, and Italy are doing worse today than during the Great Depression by the measure of changes in their GDP since the Great Recession began.

“[S]urpasing the track record of the 1930s shouldn’t be a tough challenge.  Haven’t we learned a lot about economic management over the last 80 years?  Yes, we have — but in Britain and elsewhere, the policy elite decided to throw that hard-won knowledge out the window, and rely on ideologically convenient wishful thinking instead.”

Krugman says that because President Obama has refused to “do a Cameron” (in the sense of emulating Prime Minister David Cameron’s austerity in Britain), things aren’t as bad here as they could be.  But he notes that while federal spending hasn’t been slashed, local and state spending has, and that has hurt our overall economy.  Krugman laments, “Without those spending cuts, we might already have been on the road to self-sustaining growth….”

Krugman concludes:

“The infuriating thing about this tragedy is that it was completely unnecessary.  Half a century ago, any economist…could have told you that austerity in the face of depression was a very bad idea.  But policy makers, pundits and, I’m sorry to say, many economists decided, largely for political reasons, to forget what they used to know.  And millions of workers are paying the price for their willful amnesia.”

 

* “The Austerity Debacle,” by Paul Krugman, NYT

Who Moved the GOP’s Cheese?

Instead of focusing on fixing programs like Social Security and Medicare, the Republican Party suddenly is arguing these programs are somehow unAmerican and unconstitutional.  Rick Perry calls Social Security a Ponzi scheme and a monstrous lie.  Michele Bachmann declares we have to wean people off Social Security.  Marco Rubio claims these programs have weakened us as a people.  Paul Ryan wants to end Medicare as we know it.

This hasn’t been the party’s position before.  Ronald Reagan reformed Social Security, he didn’t seek to destroy it.  George W. Bush grafted a new prescription drug entitlement onto Medicare.  Now extremists have taken over the party, and their views are presented as the new mainstream, the new normal.  If you disagree, you aren’t a Republican anymore.  Who are these people?  Where did they get this authority?  Their fringe views don’t represent most rank-and-file Republicans, let alone most Americans.

The truth is that we are not victims of a Ponzi scheme, we are victims of our own government’s theft when it comes to Social Security.  There should be $2.6 trillion sitting in the Social Security trust fund, enough to last till 2036, but the government has spent that money.  Where is your Social Security?  It went to Iraq and Afghanistan.

We need to prevent another Great Depression, not fight the battles of the last one.

The Republican Party seems determined to drag us back to the 19th century, rather than face the challenges of the 21st.  What will they oppose next — indoor plumbing?