If President Obama is looking for a talking point against Mitt Romney in tonight's debate, he could do worse than point to the situation across the pond.
None other than the bastion of "fiscal consolidation" itself, the Wall Street Journal today reports the sad news from Britain that its bold experiment in austerity has ended up making things far worse than they otherwise would have been.
The U.K. government's budget watchdog Tuesday joined the International Monetary Fund in warning that austerity measures may be exerting more of drag on the country's economic growth than previously thought.The UK's economic growth this year is forecast as zero percent. It went back into a recession earlier this year.
The independent Office for Budget Responsibility said the coalition government's program of spending cuts and tax increases could partly explain why the U.K. economy only grew 0.9% between the first quarter of 2010 and the second quarter of 2012--significantly lower than its forecast ...
Specifically the OBR stated: "fiscal consolidation may also have done more to slow growth than we assumed."
"Fiscal consolidation" is a euphemism for cutting government spending, the pillar which forms the basis for the Republican Party's entire economic thesis, and by extension that of its current standard-bearer, Mitt Romney. Why did Britain's "fiscal consolidation" exert a negative effect on growth? One of the reasons is that it dampened enthusiasm for investment:
Chote said the austerity package might have had more of a negative impact by affecting investment behaviour.In other words, people tend to hoard and hunker down when their safety net and salaries and pensions are taken away. Big surprise, huh? When you have nothing to spend, you don't spend. And when people don't spend, well, it follows that "businesses might be concerned about future demand for their products."
"Businesses might be concerned about future demand for their products because of the way they are thinking people will be responding to the fiscal consolidation," Chote explained
Rocket science, clearly.
The Financial Times appeared to be spinning furiously to seize on any quotes which would have implied the opposition conclusion. The Guardian, however, echoed Reuters and the Wall Street Journal's interpretation of the OBR's statement that austerity measures have exacerbated Britain's death spiral.
The OBR also came through with this scary nugget of honesty.
"that the financial crisis may have dealt a lasting blow to the economy's ability to grow."Just think about that for a minute. Everything brought to a screeching halt for the foreseeable future. Britain has fallen back into recession for the last three quarters, per the IMF.
By amazing coincidence, Paul Krugman happened to be in town participating in a debate sponsored by the London School of Economics. Krugman called Britain's pursuit of austerity measures "fundamentally mad" and asserted such a policy risked crippling Britain's economy for the next 10-15 years.
Krugman said that there was a "clear and present risk" that George Osborne's austerity policies would damage Britain's future.Harlan Green wrote a column today in the Huffington Post examining the underpinning of the mysterious "eyes-only" Romney "economic program" and concluded it resembled nothing less but what has already proven disastrous in Europe.
"The shadow won't just be cast on the present, but on the longer term," he said. "[Britain] will be a weaker economy ten years or even 15 years from now because [it has] failed to provide adequate demand now."
So how can Romney say he will create 12 million jobs during his tenure by cutting government spending while lowering taxes? He has said his blueprint is Paul Ryan's House passed budget bill that drastically downsizes safety net programs, and cuts some $5 trillion in taxes over 10 years, without specifying where he will raise additional revenues to pay for those tax cuts. Since no expert believes it can be done without removing such favored tax shelters as the home mortgage interest deduction, it will create the same austerity trap Europeans now find themselves in.The pathological focus on debt reduction espoused by the likes of Paul Ryan and the Tea Party has already proved itself as a recipe for disaster in Europe. Green cites the World Economic Outlook (WEO) report recently released by the International Monetary Fund.
Chapter One of the WEO report stated that current European policies that demand a reduction of debt as the path to recovery without job creation programs were wrong. In fact, "... IMF staff research suggests that fiscal cutbacks had larger than-expected negative short-term multiplier effects on output, which may explain part of the growth shortfalls," said the report.Romney hasn't directly said he'd hew to the Ryan budget, which provides the austerity blueprint for the House GOP. And he will make every effort to wiggle out of acknowledging just what plan he would pursue. His likely Treasury Secretary, however, has already come out in favor of austerity measures. Ultimately, as Krugman recently noted, what Romney does or does not want may largely be beside the point. The "gut spending at all cost" mantra has already become the immutable credo of the GOP and is unlikely to magically vanish in a Romney Administration. The GOP House would see his election as a vindication of their philosophy and would act accordingly:
For leading Republicans have very much tied themselves to the view that slashing spending in a depressed economy — “fiscal consolidation,” in IMF-speak — is good, not bad, for job creation. Soon after the midterm elections, the new Republican majority in the House of Representatives issued a manifesto on economic policy — titled, “Spend less, owe less, grow the economy” — that called for deep spending cuts right away and pooh-poohed the whole notion that fiscal consolidation (yes, it used the same term) might deepen the economy's slump. “Non-Keynesian effects,” the manifesto declared, would make everything all right.* * *
Republicans, however, are committed to an economic doctrine that has proved false, indeed disastrous, in other countries. Nor are they likely to change their views in the light of experience. After all, facts haven't gotten in the way of Republican orthodoxy on any other aspect of economic policy.You can donate to President Obama's re-election campaign here.
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And here's the thing: if Mitt Romney wins the election, the GOP will surely consider its economic ideas vindicated. In other words, politically good things may be about to happen to very bad ideas.