How austerity policies and stimulus policies affect the GDP
The financial experts had expected the U.K. to eke out a teensy bit of economic growth in 2012. But the Office for National Statistics
reported Wednesday that the British economy contracted for the second consecutive quarter, registering a 0.2 percent decline in annualized Gross Domestic Product for the first quarter of the year on top of the 0.3 percent GDP decline in the fourth quarter of 2011. The killers came from the biggest drop in construction in three years and in industrial production.
They call what's happening a "technical recession" as a result of the back-to-back two-quarter loss, just as they call what's happening in Spain a "technical recession." Technically, it's weasel wording. Britain, Spain, Portugal, Greece and Ireland are all now in recession. The Netherlands and France have not yet succumbed, but weak economic data have roiled their governments, contributing to the collapse of the Dutch parliamentary coalition and French President Nicolas Sarkozy's loss in the first round of voting over the weekend.
Behind it all is European austerity policy, the very stuff Republicans in the United States have been promoting for the past three-plus years. If they'd won the election in 2008 and imposed their proposals, you could add the U.S. to those nations who are now seeing so much economic damage. Indeed, it is unlikely the U.S. would have emerged from recession as it "technically" did in mid-2009. The policies the GOP objected to, particularly the economic stimulus package put forth and barely passed by Congress shortly after Barack Obama took the oath as president, have made a big difference even though they were not nearly as vigorous as truly needed to deal with the depth of the Great Recession. The GDP chart above shows the difference.
Now, as Joe Stiglitz makes clear in an excellent interview in The European, GDP is not the best measurement of people's well-being since it keeps going up while workers keep getting bit in the behind. (There's a discussion in bobswern's diary.) But there is still a big difference in what's happened in the United States and Europe over the past few years.
As my colleague Laurence Lewis wrote this past weekend, "Austerity is a disaster." Just as its tentacles have spread across Europe, the backlash against it is spreading as well. Whether (and how fast) potential replacement governments in France and the Netherlands and perhaps Britain itself can reverse the slide is anybody's guess. But it's increasingly clear that the people in those countries, and in Spain where youth unemployment is a stunning 50 percent, are fed up with the imposition of austerity on everyone but the people who brought on the financial crises in the first place.
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How much the European downturn will affect the fragile U.S. economic recovery is also anybody's guess. Many economists had been saying that the European situation would not have much impact here. But recent U.S. economic statistics have been, as they say, mixed. In the place where they matter most to most people, employment, last month showed a steep drop after several months of reasonably encouraging news. New trend or fluke? You can find any number of experts making the case for each.
What's important to keep in mind while perusing all the economic analyses is that while the Great Recession has been officially over for nearly three years, the devastating impacts remain with us and will for years to come. For instance, there is a huge jobs deficit, around 10 million jobs that we should have but don't, a housing market that only maybe has finally bottomed out and considerable long-term damage to the younger generation whose high school and college graduates saw the job market dry up just as they were supposed to be getting started.
And those are only the acute problems.
Until quite recently the chronic problems brought about by "free" trade agreements, union-busting, upward transfers of wealth via the tax code that have enhanced income inequality, deregulation of the financial markets and criminally loose enforcement of the regulations that remain have been all but ignored by all but a few people with megaphones big enough to be heard. In addition, directing money into public infrastructure, both physical and social, has been treated by far too many politicians like an expense rather than the crucial investment that it is. As President Obama made clear Tuesday in his speech at my alma mater in Boulder:
Earlier generations made investments necessary to build a strong middle class. Somebody started this university. Somebody gave us a chance. Somebody made the investment in us because they helped to forge America’s leadership in things like science and technology and manufacturing. That’s what previous generations did, and now it’s our turn. Somebody here might be discovering the cure for cancer. Somebody here might be getting the formula for fusion. Somebody here might be inventing the next great American industry. But that’s only going to happen if we understand that we’re in this together.
Austerity is
not about being in it together. It's just another round of class warfare promoted by lies. And its impact, as can be seen in Britain and Spain and elsewhere in Europe, epitomizes the ideology of devil-take-the-hindmost. Chief among the lies is that the hindmost are at the root of our economic problems, that those on the bottom rungs are responsible when things get economically sticky for those further up the ladder (but, of course, never those on top). Divide and conquer, the world's oldest warfare tactic.
The austerity theme should be demolished. What's really needed right now is for our leaders to treat the present collection of economic crises the way the threat to the world was treated seven decades ago. When World War II came along, huge resources were applied and huge debt was incurred. Afterward, through the GI Bill, the Marshall Plan and heavy investment in education and projects like the Interstate highway system, America became an economic giant, and prosperity, while certainly not equal across racial and gender lines, was more evenly distributed than it is today. And the debt was paid off. Good policy would take us back to the better elements of those days. That would include returning to a more progressive tax code and a commitment to enhancement of New Deal and Great Society programs. And a good deal more.
Some say this is an impossible dream blocked by corporate control. That we're not merely stuck where we are with all those chronic problems but also that they will get worse. That is despair talking. Despair creates apathy and apathy kills activism. Progressives should never succumb to such a can't-do spirit.
The first step to avoiding that is making sure that the promoters of austerity don't gain a greater grip on the political machinery of our country than they already have. Doing so will require a combination of direct action and electoral activism, not arguing, as has so often been the case, that only one method actually works. Every reform requires both, in tandem.