Austerity Is Dead: Can Someone Please Tell Paul Ryan and His Deluded GOP Cohorts?
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Paired with these sky-high unemployment rates has been extremely weak economic growth. In 2012, the Eurozone officially fell into its second recession in three years, and the continent has seen four consecutive quarters of either no growth or contraction. Even the supposedly mighty German economy shrank in the fourth quarter of 2012.
And Europe didn’t even get any debt reduction for its efforts. In fact, according to Eurostat, European countries had a collective debt load of 90 percent of gross domestic product (GDP) in the third quarter of 2012. Three months earlier, that number stood at 89.8 percent. One year earlier, it was 86.8 percent. So Europe’s debt is rising, despite all of its austerity efforts. "The cause behind the slight increase is no longer a growing debt pile, but a shrinking gross domestic product," Ulrich Kater, an economist with Germany's DekaBank, told the Associated Press.
Those Other Conservatives
Perhaps no country should provide as stark a warning to the GOP as the United Kingdom. David Cameron and his conservative government came into office with much fanfare, and Republicans immediately wanted the U.S. to follow in the U.K.’s footsteps regarding the budget. “We need a budget with a bold vision – like those unveiled in Britain and New Jersey; one that reduces both the size of the deficit and the size of the government,” wrote the Senate Budget Committee’s ranking member, Sen. Jeff Sessions (R-AL), two years ago this month.
The U.K. cut public investment by half over the last three years, even as the cost of government borrowing hit historic lows. Fast-forward, though, and the U.K. is not a shining example of fiscal discipline, but an economy on the edge. One more quarter of contraction and Britain will officially enter a triple-dip recession. The only positive growth in the U.K. over the last five quarters came courtesy of the London Olympics, hardly a sustainable strategy. As John Lanchester wrote in a scathing piece in the London Review of Books, the U.K.’s austerity push has almost entirely backfired:
In June 2010, in his first budget, [UK finance minister George] Osborne said the structural deficit was 4.8 percent, and that with three years of reduced spending, the figure would be down to 1.9 percent. So how’s that going? Well, by the end of those three years, after £59 billion of tax rises and spending cuts, the figure is set to be 4.3 percent. Even that number was achieved only thanks to a kitchen sink’s worth of special inputs.
According to research by the National Institute of Economic and Social Research, “Britain's stagnating economy has left it in worse shape at this point of its recovery than it was during the Great Depression.”
The IMF's Mea Culpa
Even economists who backed Cameron and Osborne’s austerity push have abandoned ship and called for a change of course. “If I were Chancellor at this point, I would alter the plan, I would stop the cuts to public investment and I might even seek to increase it,” said Roger Bootle, managing director of Capital Economics and an Osborne backer. “The key thing is to try and get the private sector to spend its money and that may require a bit of government spending to prime the pump.”
A much higher profile about-face came courtesy of the International Monetary Fund. Top researcher Olivier Blanchard and staff economist Daniel Leigh found that the IMF has been severely underestimating the negative effects of austerity. “We find that a 1 percentage point of GDP rise in the fiscal consolidation forecast for 2010-11 was associated with a real GDP loss during 2010-11 of about 1 percent, relative to forecast,” they wrote, admitting that the IMF’s push for countries to rapidly reduce debt was misguided and detrimental.