The Fire Next Time: The Euro Financial Crisis – ‘Austerity’ and The Great Unraveling

Posted by AzBlueMeanie:

The Tea-Publican Party has been pushing for conservative economic "austerity" measures in Congress and in statehouses across the country. They still believe in Treasury Secretary Andrew Mellon's economic advice to President Herbert Hoover after the Crash of 1929:

"Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate. It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up the wrecks from less competent people."

This policy was an epic failure for Herbert Hoover, and resulted in the misery of the Great Depression.

So conservative economic theory was "updated" under President Ronald Reagan in 1981 into supply-side "trickle down" economics: reduce federal debt and taxes, and this will result in economic growth. The only problem is, there is no empirical evidence in support of this economic theory. (Spare me the Saint Ronnie Reagan mythology. Reagan tripled the national debt while simultaneously raising taxes 11 times during his administration).

When this supply-side economic theory became fundamentalist dogma under George W. Bush, it was an epic failure, and resulted in the misery of the Bush Great Recession. The Bush Years Were a Lost Decade.

Now, Tea-Publicans are looking to the conservative economic "austerity" agenda that's dominating Europe and calling for the United States to follow the continent's lead. But as Steve Benen writes, the European Union provides 'A cautionary tale':

This is especially true of David Cameron's British austerity policies, which have drawn enthusiastic praise from Republicans, who wish President Obama would implement parts of the Prime Minister's plan here in the U.S.

Indeed, it was almost exactly a year ago when Sen. Jeff Sessions (R-Ala.) wrote an op-ed urging U.S. policymakers to follow the lead set by our friends across the pond: "We need a budget with a bold vision — like [the one] unveiled in Britain."

We're getting a very good look at the efficacy of the austerity agenda Republicans are so fond of.

Britain's economy slid into its second recession since the financial crisis after official data unexpectedly showed a fall in output in the first three months of 2012, piling pressure on Prime Minister David Cameron's embattled coalition government.

The Office for National Statistics said Britain's gross domestic product fell 0.2 percent in the first quarter of 2012 after contracting by 0.3 percent at the end of 2011, confounding forecasts for 0.1 percent growth.

The last time Britain suffered a double-dip recession was in 1975.

Remember, this is of critical importance here in the U.S., because Republicans are eager — desperate, really — to impose this same kind of austerity agenda here. In fact, perhaps the most frustrating realization about the news out of the UK is that it won't deter Republicans at all.

At what point is it no longer impolite to suggest the GOP's economic vision is ridiculous?

In 2009, with an economy on the brink of collapse, Democrats wanted Keynesian stimulus, while Republicans pushed for debt reduction. Republicans were wrong and Democrats were right — using the government to pump capital into the economy almost immediately improved job creation and economic growth.

In 2011, austerity's champions — in Europe and the U.S. — said taking money out of the economy and scaling back investments will lead to stronger growth and lower debts. We've now seen the results of this experiment: lower growth and higher debts.

Instead of learning anything from these developments, Republicans still expect the American electorate to give them the power to pursue a European-style austerity agenda here at home, despite its abject failures.

Will Tea-Publicans face an agry electorate and pay the political price for their misplaced faith in conservative economic "austerity' measures as their counterparts in Europe now face? Angry EU voters rebel against austerity plans:

For more than a year, European Union officials have called for austerity, austerity and more austerity as a means to solve Europe's debt crisis. Now people who don't want to pay the price are taking their fight from the streets to the ballot box.

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Increasingly, the long focus on austerity is convincing Europeans that the German-led mantra of fiscal responsibility is creating a vicious circle of more misery leading to lower growth — leading to even greater debt distress.

"What is happening in Europe is the austerity drive is actually slowing down the necessary rebalancing of European economies," said Simon Tilford, chief economist at the Center for European Reform.

Austerity measures aimed at balancing national budgets have led to drastic spending cuts by governments across the continent, including layoffs and pay cuts for government workers, slashing of key services including welfare and development programs, as well as tax hikes to boost government revenues.

Many in Europe have had enough of this harsh medicine.

* * *

Analysts say it's no surprise people are fed up.

"I don't think there are any examples of countries accepting endless austerity and downward standards of living," Tilford said. "There has to be light at the of the tunnel."

* * *

As Europe evolves, the Germans may wind up the big losers. They have been the most insistent on enforcing austerity, warning of the "moral hazard" of helping out countries that have not endured sufficient pain as a result of past lapses in discipline.

* * *

[A]t least some economists are now calling for a return to priming the pump — even at the cost of higher deficits.

"There can be no fiscal sustainability across Europe as a whole without a return to economic growth," Tilford said.

Note: The Great Unraveling: Losing Our Way in the New Century is the title of a book by Nobel Prize winning economist and New York Times columnist Paul Krugman.