No one’s happy about the weak U.S. economy, but one way to keep it in perspective is to compare it with the even weaker Europe economy.
You’ll recall that, a couple of years ago, two things happened:
First, Europe embarked on a path of “austerity”—government spending cuts—to try to shrink its deficits and get its debt problem under control. This was supposed to restore “confidence” to the private sector, which would then result in an economic growth boom that would allow Europe to grow its way out of its problems.
Meanwhile, in the U.S., the Republicans in Congress (and the Tea Party) suddenly became obsessed with the U.S.’s own deficit—a deficit that the GOP bears at least half of the responsibility for creating—and demanded that the U.S. immediately pursue an austerity path of its own. Specifically, the Republicans pushed the U.S. to the brink of default while holding out for enormous spending cuts. The Republicans scuttled a “grand bargain” proposed by President Obama that would have put together a 10-year plan to gradually reduce the deficit. Then, in a last-minute compromise, the government agreed to postpone immediate spending cuts in favour of the “Fiscal Cliff” that we’re facing on January 1.
In other words, unlike Europe, the U.S. postponed austerity.
So, which path worked better?
Here’s a chart Paul Krugman just published. The U.S. is in red. Europe is in blue.
Photo: Paul Krugman, New York Times
The U.S. will have to begin to solve its debt and deficit problems soon—hopefully with an intelligent 10- or 20-year plan. But there’s no doubt about which approach has worked better in the short term: The U.S. approach.
Austerity, meanwhile, has been a disaster.
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