It’s pretty ironic right now how, as Europe’s gamble with austerity appears to be failing, the U.S. government is facing political outrage for not choosing austerity, ie. for its large economic stimulus programs.
Austerity’s performance has been terrible so far according to the bond market, whereby bond spreads for Europe’s troubled economies now indicate less confidence in government debt burdens than pre-austerity measures. Spending cuts were supposed to reduce government default concerns, but they failed:
This week Europe’s crisis is back in focus, and while the U.S. remains a mess, its economy is performing better than Europe’s. Bond and currency markets aren’t spooked by the prospect of a near-term debt crisis from the U.S. either.
The Nobel Prize-winning economist Joseph Stiglitz even thinks its fair to say by now that Europe simply chose the wrong path when it chose to push spending cuts during a period of economic hardship:
“Europe has made a wrong bet with austerity,” Stiglitz, 67, told reporters today in Budapest. If Germany, the U.K. and France remain committed to budget cutting, “that will have systemic consequences for the entire Europe.”
Europe’s economy is at risk of sliding back into recession as governments reduce spending to rein in budget deficits, Stiglitz, a former chief economist at the World Bank and now a professor of economics at Columbia University in New York, said in an interview with Dublin-based RTE Radio on Aug. 24.
Yet stimulus spending, the opposite of austerity, has attracted outrage in America. The argument goes: If only America had chosen austerity, then things would be better right now… even though the experience of Europe so far says otherwise.
Thus the irony this fall is that many American voters could oppose the very path which is already proving itself most successful. Just look across the pond.