One inconvenient truth facing those who still favour the “austerity” approach to our current economic predicament (slow growth, high unemployment) is that the austerity approach makes the problem worse.
When we cut government spending, we reduce economic growth and we put more people out of work.
When we reduce economic growth and put more people out of work, we reduce consumer spending, which, in turn, further reduces economic growth.
When we reduce economic growth and put more people out of work, we also reduce tax revenue, which increases our budget deficit.
So, then, to do what we were trying to do by enacting “austerity” in the first place–reduce the budget deficit–we have to cut even more government spending.
And so on.
This is what’s happening in Greece, where the economy has shrunk 18% over the last several years, and the budget deficit is miles from being closed.
(The Greek economy has shrunk 18%. Imagine that. Peak to trough, in 2008 and 2009, the worst recession since the Great Depression, the U.S. economy shrank about 7%. And it felt like our civilisation was about to collapse.)
It’s also what’s happening in the UK, where economic growth has been even worse than ours and they may be headed for a triple-dip recession.
It’s what’s happening across the Eurozone.
And it’s what’s happening here, where we have shrunk government spending, and, in so doing, slowed our rate of economic growth and kept more people out of work.
But that hasn’t stopped one of our political parties from insisting that we enact more austerity.
And that’s why, tomorrow, we will be cutting more government spending, thus making our economy worse.
(True, both political parties voted for the sequester. But be honest: One of those parties would happily eliminate it. And also be honest: Although our debt and deficit is a concern, it is not yet so big a crisis that we need to shoot ourselves in the foot to address it.)
The New York Times has posted a couple of simple graphics that show what austerity is doing to our economy.
The first shows that government spending has already shrunk 5% in the past two years, which has acted as a big drag on both GDP growth and employment.
And the second shows that, in this recovery, unlike every other post-war recovery, government employment has decreased in the last few years, thus compounding the unemployment problem (normally, the government hires people in the wake of recessions, thus helping to boost the economy and reduce unemployment. Not this time.)
Yes, we have a debt and deficit problem.
No, this problem is not so extreme and out of control that we need to intentionally hurt ourselves now, when we’re already weak, to fix it.
Yes, the sequester and austerity approach will hurt the economy.
No, there’s no good reason to do it other than adherence to an outmoded and demonstrably incorrect ideology.
But the political party that is insisting on austerity has unfortunately long since abandoned any pretense about being the party that is smart about the economy.
So once more unto the breech…
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