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How about real austerity? Real growth?Today, we introduce a new twist on these Daily Reckoning remarks… The new approach is that we are going to write less. Yes…we promise! Long term Daily Reckoning sufferers have heard this before. But this time, we really mean it. Honest injun.
And to prove we are serious, we’re keeping today’s comments to just two pages…And only one subject. An old one.
We live in a world of frauds and counterfeits…bunkum and claptrap…
That’s what makes it so much fun! It brings tears to our eyes one day…and seizures of laughter the next. So many imposters…so little time.
As you know, neither Europe’s austerity policies nor America’s growth policies have worked. Why? Because they are both phony.
In Europe, governments collectively spent 44.8% of GDP in 2000. Today it is 49.2%. A big increase. That’s not austerity…that’s stimulus. The Europeans are letting out their belts, not cinching them up.
And now that the phony austerity is not working, a new batch of leaders wants to try something new — phony growth. Francois Hollande, France’s new president, says he will hire more government workers and spend more money to promote “growth.” He also says he’ll raise taxes on the rich to 75% of marginal income (up from 41% now) and increase the “wealth tax.” How he thinks you get real growth out of this foul mixture is a mystery. The government already directs and consumes half the nation’s output…and the economy is flat. How will it do better with more money? Instead, the French will be wasting resources…squeezing the most productive part of the economy…and getting poorer.
Meanwhile, the US has stuck to its phony growth policies. The feds run huge deficits to ‘stimulate’ the economy.
(Reuters) — The government posted a budget deficit of $125 billion in May, more than twice the level registered in the same month last year.
The May deficit, which was close to analyst forecasts, followed a rare month of surplus in April that was due to higher budget receipts during tax season but also other temporary factors.
So far this fiscal year, the budget deficit stands at $844.5 billion, narrower than at the same time a year ago.
Under the government’s accounting system, October is the opening month of fiscal 2012. During fiscal 2011 which ended September 30, the budget deficit totaled $1.296 trillion.
We saw yesterday where all that money has gotten us. Nowhere. Family wealth has dropped back to levels of 20 years ago.
But wait…maybe it’s not the feds’ fault. While the Europeans pretend to cut back, maybe America’s stimulus program is a fraud too. That’s what a pair of professors at Yale claim. This ‘recovery’ is different from previous recoveries, they believe, because the US is following a “hidden austerity program:”
…there is something historically different about this recession and its aftermath: in the past, local government employment has been almost recession-proof. This time it’s not. Going back as long as the data have been collected (1955), with the one exception of the 1981 recession, local government employment continued to grow almost every month regardless of what the economy threw at it. But since the latest recession began, local government employment has fallen by 3 per cent, and is still falling. In the equivalent period following the 1990 and 2001 recessions, local government employment grew 7.7 and 5.2 per cent. Even following the 1981 recession, by this stage local government employment was up by 1.4 per cent.
Without this hidden austerity program, the economy would look very different. If state and local governments had followed the pattern of the previous two recessions, they would have added 1.4 million to 1.9 million jobs and overall unemployment would be 7.0 to 7.3 per cent instead of 8.2 per cent.
So, dear reader, pick your poison. Phony growth? Or phony austerity? Neither works. What does work? What would turn this economy around…and put it back on the road to real growth? We’ll tell you next week. We’re out of space for today.
Committed to Phony Growth originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas. Recently Agora Financial released a video titled “What Causes Gas Price to Increase?“.
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