For the past four years since the collapse of the banking industry during the Bush economic crisis – Republicans have been borrowing economic theories and proposals from former Republican President Herbert Hoover. They have been advocating for significant cuts to government spending while in the middle of a financial crisis; Republicans tried that in 1929 … it took 3 years of Republican theories in action before the country’s unemployment rate exceeded 25%. That’s American history but Republicans seem to have missed class that day.
Well – the whole of Europe has adopted Republican ideology of austerity. Whether it was Britain or the entire Eurozone – they were famously reluctant to focus on economic stimulus and instead focused on reducing the deficit. Three years later – Europe is in a double dip recession and U.S. growth has more than doubled that of Britain’s; and next year – the U.S. deficit will be smaller too.
The New Yorker wrote an excellent article highlighting the failure of austerity policies HERE; an excerpt:
With Republicans in Congress still intent on pursuing a strategy similar to the failed one adopted by the Brits, this is a story that needs trumpeting. Austerity policies are self-defeating: they cripple growth and reduce tax revenues. The only way to bring down the U.S. government’s deficit in a sustainable manner, and put the nation’s finances on a firmer footing, is to keep the economy growing. Spending cuts and tax increases can also play a role, but they need to be introduced gradually.
As one would have expected on the basis of the textbooks, the American economy, while hardly racing ahead, has fared considerably better than its British counterpart. Between 2010 and 2012, G.D.P. growth here has averaged about 2.1 per cent. For the U.K., the figure is 0.9 per cent. What may be more surprising—at least to those of you who have been listening to the deficit hawks—is that the United States, while sticking with Keynesian stimulus policies, has also managed to bring down the size of its deficit, relative to G.D.P., almost as rapidly as hairshirt Britain has. Back in 2009, at the depths of the recession, both countries had double-digit deficits. Today, the U.S. deficit stands at about seven per cent of G.D.P., and the British deficit is about five per cent of G.D.P. But with the U.S. growing faster than the U.K,. the gap is set to close. Next year, according to the latest forecasts from the Congressional Budget Office and the O.B.R., the U.S. deficit will be considerably smaller than the U.K. deficit: four per cent of G.D.P. compared to six per cent.
Let’s go over that one more time. Having adopted the policies of Keynes in response to a calamitous recession, the United States has grown more than twice as fast during the past three years as Britain, which adopted the economics of Hoover (and Paul Ryan). Meanwhile, the gaping hole in the two countries’ budgets has declined at roughly the same rate, and next year the U.S. will be in better fiscal shape than its old ally.
For November 2012 – the economy added 146k nonfarm jobs (the two months prior were revised downward) and the unemployment rate dropped to 7.7% which is the best result since President Obama became president. But we’re not growing fast enough. Republicans are grinding down the economy and voting against any and all stimulative policies such as extending unemployment benefits, extending the payroll tax cut, extending tax cuts for the middle class, $50 billion in tax credits for employers who hire American workers etc. They simply will not allow those policies to pass and instead they’re forcing through Hoover era policies to focus on controlling the deficit; they’re proposing the same policies that pushed Britain into a double dip recession.
Greg Sargent says it right HERE:
Look: This is just crazy. It is time for the fiscal cliff talks to focus seriously on doing something about unemployment, not just about taxes and the deficit.
Democrats need to absolutely insist on this. Some Dems in Congress were planning to seize on today’s jobs numbers to renew the push for more stimulus in any fiscal cliff deal — an extension of unemployment insurance and the payroll tax cut, and more infrastructure spending to boost the economy. The fact that today’s jobs numbers were more decent than expected should not change this. Millions of Americans are still suffering.
Krugman says we’re experiencing a jobs crisis HERE:
So why aren’t we helping the unemployed? It’s not because we can’t afford it. Given those ultralow borrowing costs, plus the damage unemployment is doing to our economy and hence to the tax base, you can make a pretty good case that spending more to create jobs now would actually improve our long-run fiscal position.
Nor, I think, is it really ideology. Even Republicans, when opposing cuts in defense spending, immediately start talking about how such cuts would destroy jobs — and I’m sorry, but weaponized Keynesianism, the assertion that government spending creates jobs, but only if it goes to the military, doesn’t make sense.
No, in the end it’s hard to avoid concluding that it’s about class. Influential people in Washington aren’t worried about losing their jobs; by and large they don’t even know anyone who’s unemployed. The plight of the unemployed simply doesn’t loom large in their minds — and, of course, the unemployed don’t hire lobbyists or make big campaign contributions.
This chart compares the slow jobs growth since the beginning of the Bush economic crisis in December of 2007 vs. all other recessions since 1948. We need more stimulus.
For anyone who may think the chart above is somehow an indictment on President Obama … you should educate yourself about the differences between financial crisis and other recessions.
In January of 2009 – Carmen Reinhert - Professor of the International Financial System at Harvard Kennedy School - and Kenneth Rogoff - Professor of Public Policy and Professor of Economics at Harvard University wrote a report highlighting the tremendous differences between a financial crisis like what we experienced in 2009 compared to different types of recessions. They found that not all recessions are equal and that financial crisis were significantly longer, deeper and more costly. Their report said governments had no option but to spend more thus increasing the deficit and they wrote it before Obama was sworn into office. As we wrote HERE:
They share this chart in their presentation which shows the AVERAGE % increase in unemployment for financial crisis is 7%. The recession started in December of 2007; the unemployment rate was 5.0% (source). Unemployment rose 5.1% to 10.1% on the high end (source); that’s not only not the worst recovery in history … it’s significantly better than the average response. Had unemployment grew to the average under financial crisis – we would have hit 12%.
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