If the majority of U.S. voters are stupid enough to buy into the GOP economic austerity gobbledegook and swallow their crazy, backwards, delusional, cockamamie economic theories, we deserve another Great Depression. I hate to admit it, but my dad may have been correct. He always told me that people generally get what they deserve.
Last week was full of bad news for the worldwide economy. The euro zone leaders seem disinclined or incapable to change from their austerity policies, even as Greece and Spain disintegrate before our eyes and the core euro zone economies contract. Britain watches on as its economy is heading for the third consecutive quarter of contraction, with an unexpectedly sharp fall in manufacturing. Last week’s jobs figures established that the US recovery is stuttering. The largest developing economies that have so far provided some support for world demand levels, but even India, Brazil, and China are slowing down too. Four years after the financial crisis began with the U.S Housing crash (in which not a single person(s) RESPONSIBLE for the crash has so much as lost their job), many rich capitalist economies have not recovered their pre-crisis output levels.
Unemployment is even a more serious problem. The International Labour Organisation estimates there are 60 million fewer people employed worldwide than if the pre-crisis trend had continued. In countries like Spain and Greece, overall jobless rates are approaching 25%, with youth unemployment over 50%. Even in countries, experiencing “milder” unemployment problems, like the US and the UK, between 8% and 10% are out of work. If we include those who have given up looking for jobs or those who are forced to work part-time for want of fulltime opportunities, “real” unemployment could be easily over 15% even in these countries.
The solutions that have been proposed are probably well-known, but astoundingly misunderstood.
- Reduce budget deficits by cutting spending–especially “unproductive” social welfare spending that reduces growth by making poor people less willing to work
- Cut taxes at the top and deregulate business (euphemistically called “cutting red tape”) so that the “wealth creators” have greater incentives to invest and generate growth
- Make hiring and firing easier.
Yet, increasingly, it is acknowledged that these austerity policies across Europe are not working in the current environment. Less widespread is the recognition that there is also plenty of historical evidence showing that they have never worked during a period of economic downturn. If austerity is practiced during growth times to pay down debt, fine. I’m all for that because it’s practical. What is NOT practical is to spend during growth periods and cut spending during downturns!!
The same happened during:
- The 1994 Mexican crisis
- The 1997 Asian crisis
- The Brazilian and the Russian crises in 1998
- The Argentinian crisis of 2002.
- The Euro zone crisis that started in 2010
- The United Kingdom crisis that started in 2010
All the crisis-stricken countries were forced (usually by the IMF) to cut spending and run budget surpluses, only to see their economies sink deeper into recession. Going back even further, the Great Depression also showed that cutting budget deficits too far and too quickly in the middle of a recession only makes things worse.
As for the need to cut social spending to revive growth, there is no historical evidence to support that either.
- From 1945 to 1990, per capita income in Europe grew considerably faster than in the US, despite its countries having welfare states on average a third larger than that of the US.
- Even after 1990, when European growth slowed down, countries like Sweden and Finland, with much larger welfare spending, grew faster than the US.
More Hogwash Swallowed by Ill-Informed Electorate
As for the belief that making life easier for the rich through tax cuts and deregulation is good for investment and growth, we need to remind ourselves that this was tried in many countries after 1980, with very poor results.
Compared to the previous three decades of higher taxes and stronger regulation:
- Investment (as a proportion of GDP) and economic growth fell in those countries.
- The world economy in the 19th century grew much more slowly than in the high-tax, high-regulation era of 1945-80, despite the fact that taxes were much lower (most countries didn’t even have income tax) and regulation thinner on the ground.
The pro-austerity argument on hiring and firing is also not grounded in historical evidence.
- Unemployment rates in the major capitalist economies were between 0% (some years in Switzerland) and 4% from 1945-80, despite increasing labor market regulation.
- There were more jobless people during the 19th century, when there was effectively no regulation on hiring and firing.
Now, I’ll be the first to admit that there is no gain without some pain. But there is a perfectly logical way to address the long-term debt in a way that will cause minimal pain to make up for the folly that GOP administrations have heaped upon the country by giving away surpluses every time we get one. I have repeatedly championed a virtually foolproof method to accomplish long-term debt-reduction goals without risking any harsh political or economic hardships on the U.S. economy nor U.S. citizens. If you care to read my OnePennySolution there are several articles archived on this site where I have detailed the solution.
Some of them are:
- The Cure for the Republican Economic Bird Flu
- Austerity vs The One Penny Solution
- Time for Europe AND America to Implement the One Penny Solution
Logical Conclusions Based in FACT
So, if the entire history of capitalism, including present-day, real-time examples, shows that the supposed remedies for today’s economic crisis are not going to work, what are our political and economic leaders doing?
The likely explanation is that, by pushing these policies against all empirical and anecdotal evidence, our GOP leaders are telling us that they want to diminish, or better yet destroy, areas like welfare policy–the economic system that has served them so well in the past three decades.
For the rest of us, the time has come to choose whether we go along with that agenda or make these leaders admit the truth…
- The GOP is bought and owned by lobbyists
- Do we want a society where 50% of young people are kept out of work in order to bring the deficit down from 9% of GDP to 3% in three years
- Do we want a society in which the rich must be made richer off of the labor of others
- Do the poor have to be made poorer in order to work harder
- Do we want a tiny minority (often called the 1% but more like the 0.1% or even 0.01%) to control a disproportionate, and increasing, share of everything– not just income and wealth but also political power and influence
Maybe we do, but these choices need to be made consciously, rather than by default. The time has come for “We the People” to choose the kind of society we want to live in.