Skip to main content

What happens?  The severe European downdraft happens ...

Austerity Fails: European Nations See Debt Grow Despite Deep Spending Cuts

by Pat Garofalo, -- Jan 23, 2013

Since the onset of the financial crisis, European countries have attempted to deal with their economic malaise by implementing austerity packages, slashing government spending and laying off public workers. However, such measures have proved self-defeating, as the austerity measures blunted economic growth and caused Europe’s debt to actually grow:
    The countries’ total government debt relative to their annual economic output was barely changed at 90 percent of gross domestic product in the third quarter of 2012 compared with 89.9 percent for three months earlier, the EU’s statistics office Eurostat reported. It was up from 86.8 percent of GDP a year earlier.
Austerity has also, among other things, pushed Eurozone unemployment to a record high and threatened Great Britain with a triple-dip recession. Both the International Monetary Fund and the International Labor Organization have warned against further fiscal consolidation, saying that it would quash economic growth even more, thereby doing nothing to reduce debt loads. The National Institute for Economic and Social Research found that European debt loads will be higher, not lower, because of austerity.

What happens when planned Austerity Cuts actually end up cutting economic demand?

Blunted economic growth happens ... just ask the EU.

For an Economy to thrive, someone has to be "demanding" (ie buying) its products and services. When you're "austerely" worried about your own economic future, your job stability -- you're generally not doing that much "demanding" (beyond the essentials).

Which does not, a robust economy make ... just ask Europe.

But economic "belt tightening" at a national level is a good thing, right?  People shouldn't spend beyond their means. Credit Cards are for dreamers ... right?

Eurozone debt burden stuck amid low growth

by Juergen Baetz, Associated Press -- BERLIN (AP) -- Jan 23, 2013

But shrinking economies make it difficult for eurozone countries to get debt levels under control despite pushing through harsh spending cuts and reforms because shrinking output makes the value of a country's debt as a proportion of the size of its economy worse.

Germany has been the main reason why the eurozone as a whole has not fallen into recession -- technically defined as two quarters of negative growth in a row -- but Europe's biggest economy is showing signs of slowing down as the debt crisis takes its toll on the country's exports.

Bummer Germany, sounds like most of your neighbors can no longer afford your high quality stuff. Uh oh.

That could be because your neighbors are "austerely" worried about their own economic future, their own job stability -- that they generally not doing that much "demanding" (beyond the essentials).

European Unemployment Hits Record-High While America Contemplates Euro-Style Austerity

by Pat Garofalo, -- Jan 8, 2013

Unemployment in the Eurozone hit yet another record in November, clearing 11.8 percent, according to Eurostat. 18.8 million residents of the Eurozone are out of work, the most since the single currency was created in 1999. Across all of Europe, 26 million citizens are jobless.

As the Associated Press noted, “governments across Europe have introduced tough austerity measures, such as slashing spending and raising taxes. However, measures such as cutting wages and pensions hit the labor force in the pocket and reduce demand in the economy.” Austerity measures have also driven the U.K. to the brink of a triple-dip recession. And the U.S. is scheduled to enact an austerity package larger than that passed in many European countries, if spending cuts that are on the books actually take effect, as this chart shows: [...]

"Cutting Wages and Pensions" is for weak economic thinkers ... just ask the EU, how well all those belt-tightening policies have worked out for them, lately.

There is another way.

It's called investing in yourself -- at a national level. It's called building the stuff you're going to need in the long run anyways (ie investing in infrastructure).

It's called leveraging your high-demand Treasury Bills  (with very low interest rates), into robust economic growth and strong consumer demand. It's called putting your own nation's people back to work.

It's called being productive ... at a national level.  It's called nation building, at home.

What Is Keynesian Economics?

Keynesian economics is an economic theory named after John Maynard Keynes, a British economist who lived from 1883 to 1946. He is most well-known for his simple explanation for the cause of the Great Depression. His economic theory was based on a circular flow of money, which refers to the idea that when spending increases in an economy, earnings also increase, which can lead to even more spending and earnings. Keynes' ideas spawned numerous interventionist economic policies during the Great Depression.

In Keynes' theory, one person's spending goes towards another person's earnings, and when that person spends his or her earnings, he or she is, in effect, supporting another person's earnings. This cycle continues on and helps support a normal, functioning economy. When the Great Depression hit, people's natural reaction was to hoard their money. Under Keynes' theory, this stopped the circular flow of money, keeping the economy at a standstill.

Keynes' solution to this poor economic state was to "prime the pump." He argued that the government should step in to increase spending, either by increasing the money supply or by actually buying things itself. During the Great Depression, however, this was not a popular solution. It is said, however, that the massive defense spending that United States president Franklin Delano Roosevelt initiated helped revive the U.S. economy.


It's called "priming the pump" -- someone, or something, has to be "kick-starting" and "back-fueling" that economic engine, when too many individual workers are too worried about their own economic futures, their own job stability.  Someone has to be "the spender of last resort."  (or "first resort" if you're investing in the future.)


Something has to provide the basic Economic Demand, to get the whole Economic Cycle moving again -- and keep it moving! Someone has to give that national boulder a nudge.

And that "something" is NOT "Austerity Cuts" ... just ask Europe.

That's like throwing a wet blanket, on a fledgling camp fire -- when all it really needs a few splashes of gas ... to really catch hold.  And get cranking.  Rip-roaring.

You know ... to really start to fuel your Economy from the middle class, outwards ... just ask Keynes.  Or Krugman; or Reich; or Klein; or Johnston; or Galbraith; or Sanders.  ... Or Obama.

It's our engine. It's our pump to prime, or not ... Or it's our fledgling fire, to douse.  Just like the EU. Douse it and weep.

Originally posted to Digging up those Facts ... for over 8 years. on Sat Feb 02, 2013 at 09:39 AM PST.

Also republished by ClassWarfare Newsletter: WallStreet VS Working Class Global Occupy movement, Progressive Policy Zone, Invisible People, In Support of Labor and Unions, and Anti-Capitalist Chat.

Your Email has been sent.
You must add at least one tag to this diary before publishing it.

Add keywords that describe this diary. Separate multiple keywords with commas.
Tagging tips - Search For Tags - Browse For Tags


More Tagging tips:

A tag is a way to search for this diary. If someone is searching for "Barack Obama," is this a diary they'd be trying to find?

Use a person's full name, without any title. Senator Obama may become President Obama, and Michelle Obama might run for office.

If your diary covers an election or elected official, use election tags, which are generally the state abbreviation followed by the office. CA-01 is the first district House seat. CA-Sen covers both senate races. NY-GOV covers the New York governor's race.

Tags do not compound: that is, "education reform" is a completely different tag from "education". A tag like "reform" alone is probably not meaningful.

Consider if one or more of these tags fits your diary: Civil Rights, Community, Congress, Culture, Economy, Education, Elections, Energy, Environment, Health Care, International, Labor, Law, Media, Meta, National Security, Science, Transportation, or White House. If your diary is specific to a state, consider adding the state (California, Texas, etc). Keep in mind, though, that there are many wonderful and important diaries that don't fit in any of these tags. Don't worry if yours doesn't.

You can add a private note to this diary when hotlisting it:
Are you sure you want to remove this diary from your hotlist?
Are you sure you want to remove your recommendation? You can only recommend a diary once, so you will not be able to re-recommend it afterwards.
Rescue this diary, and add a note:
Are you sure you want to remove this diary from Rescue?
Choose where to republish this diary. The diary will be added to the queue for that group. Publish it from the queue to make it appear.

You must be a member of a group to use this feature.

Add a quick update to your diary without changing the diary itself:
Are you sure you want to remove this diary?
(The diary will be removed from the site and returned to your drafts for further editing.)
(The diary will be removed.)
Are you sure you want to save these changes to the published diary?

Comment Preferences

  •  I recall when Nixon was an avowed Keynesian (6+ / 0-)

    Better yet, I recall when Dems rode Keynesianism to their one period of sustained dominance since 1860.  It often appears to me that, while you can take the president out of U Chicago, you can't take the U Chicago out of the president.  

    Then again, the previous Dem president also eagerly advocated the glories of the CFC in his DNC stemwinder, and the DINO co-chair of the CFC served as that president's budget director.  There are also far too many Senate Dem austerians for my taste.   What's really scary is that, in practice, the contemporary GOP is more prone to adopt a bastardized form of militarized Keynesianism while preaching the Friedman bromides.

    Some men see things as they are and ask why. I dream of things that never were and ask why not?

    by RFK Lives on Sat Feb 02, 2013 at 09:48:32 AM PST

  •  As with many things, the GOP is not living (7+ / 0-)

    in a reality-based world. They have no understanding of the actual principles that underlie all of economics. (Apparently, they slept through that class.) While I object to likening the US economy, which has a fiat monetary system, to individual European countries, which have fixed currency over which they have no control, the overall theme of your diary is just right.

    How many times must the world, must the US, PROVE that austerity is never the answer when unemployment is high? It's insane. It's frustrating. It is a cause that we, as progressives, should be taking on clearly and loudly. We need to be working to educate the public and to show our lawmakers that there is support for them in doing the right thing and increasing government spending. Congress should not be "balancing the budget" or giving even one moment of consideration to federal debt or deficit. They should be striving to balance the ECONOMY. Budget is never, ever, never the issue. To quote the master (emphasis is mine), "it's the economy, stupid."

    "When in doubt, do the brave thing." - Jan Smuts

    by bunnygirl60 on Sat Feb 02, 2013 at 10:11:07 AM PST

    •  "Conservatives" not Republicans, Because We Have (3+ / 0-)
      Recommended by:
      jamess, RFK Lives, kurt

      many of them in the Democratic Party as well. Progressives can't govern, we can only message and lobby.

      We are called to speak for the weak, for the voiceless, for victims of our nation and for those it calls enemy.... --ML King "Beyond Vietnam"

      by Gooserock on Sat Feb 02, 2013 at 10:18:58 AM PST

      [ Parent ]

    •  If we don't stand up (2+ / 0-)
      Recommended by:
      Eric Nelson, kurt

      and push back;

      and state the obvious;

      and advocate for everyone ...

      who else, really will?  When push, comes to shove.

      thanks bunnygirl60, for the insightful comments.

      Here's how the game is really Rigged.

      by jamess on Sat Feb 02, 2013 at 10:38:14 AM PST

      [ Parent ]

    •  I don't think the difference between Europe and US (0+ / 0-)

      is so great.

      In both cases, central banks are insisting on a tiered money system, keeping money scarce for public uses (austerity) while ensuring that the 1% have money in plenty, via various forms of quantitative easing.

      The only difference is that the European Union has no real federal government to speak of, allowing the banks to impose austerity very readily, whereas in America the federal government must be convinced to acquiesce to austerity.

      This kind of tiered fiat system is even more effective for the 1% than the gold standard was. Under the gold standard, it was impossible to inflate the money supply beyond the amount of gold. There was a physical limit that prevented inflation.

      Under the current tiered fiat system, it is possible to do selective inflation--allowing banks an unlimited supply of money to purchase real assets, while imposing austerity (deflation) on the rest of us in order to make our assets cheap and easier for the 1% to buy. This makes possible upward transfers of real wealth that could never have occurred under a gold standard.

      Despite the central banksters' long-professed fears of inflation, what they have created (perhaps unwittingly) is even worse--a system where inflation can be manipulated to serve the interests of the 1%.

      "In America, the law is king." --Thomas Paine

      by limpidglass on Sat Feb 02, 2013 at 11:08:31 AM PST

      [ Parent ]

    •  The big dog (0+ / 0-)

      who said "Its the economy stupid" gave the game to Wall Street when he balanced the budget to pay down the debt. Previously he had turned away from the labor movement toward big money to out raise his Republican opponent. He brought the Rubinistas into the Democratic party and froze the rest of us out. I honor his opposition to the Gingrich revolution on social issues, but he sold us out on economic issues. As did Carter and has Obama. Keynseian policy is a lot more sophisticated than "stimulus". It includes countercyclical regulation and management of aggregate demand. But we don't get to talk about those things. They make everyone's heads hurt.

      "If I pay a man enough money to buy my car, he'll buy my car." Henry Ford

      by johnmorris on Sat Feb 02, 2013 at 06:25:41 PM PST

      [ Parent ]

  •  you say that (2+ / 0-)
    Recommended by:
    jamess, RFK Lives

    as if it's a bug, not a feature.

    The cold passion for truth hunts in no pack. -Robinson Jeffers

    by Laurence Lewis on Sat Feb 02, 2013 at 10:19:46 AM PST

    •  Ecomonies are Living things ... (1+ / 0-)
      Recommended by:
      Laurence Lewis

      as in, they rely on many fragile "feedback cycles."

      mess with those cycles, too much,

      and you end up with the 1930's ...

      Where "investing in the future" -- was only for the fool-hardy.

      Here's how the game is really Rigged.

      by jamess on Sat Feb 02, 2013 at 10:29:10 AM PST

      [ Parent ]

      •  unemployment in spain (3+ / 0-)
        Recommended by:
        jamess, Egalitare, Woody

        hit 26% last quarter, 60% for youth. those are serious depression numbers.

        The cold passion for truth hunts in no pack. -Robinson Jeffers

        by Laurence Lewis on Sat Feb 02, 2013 at 10:31:33 AM PST

        [ Parent ]

        •  And in Italy, something like 50% of adult (3+ / 0-)
          Recommended by:
          jamess, Laurence Lewis, side pocket

          males still at their mother's house. That can't be good.

          The other day I learned that public employment is not considered employment at all. So, when public employees are freed from their paychecks, they're considered unemployed.

          The Cons speak a special lingo, but they picked it up from economists.

          Economies are driven by demand. So, if there's no demand, there's no economy. But a demand economy, which is what the Soviets had, is bad because it is planned. And central planning is bad, except when it's done by the Department of Transportation and the Pentagon. And Ryan's budget, which is nothing but a plan, looks for balance in fifteen, maybe twenty years. Meanwhile, the Congress has refused to pass a budget and relied on appropriations bills, which are like writing checks, instead.
          Why is that bad? Because not having a budget keeps them from being able to claim they did something that was later undone, not by them, but by someone else. The Budget and Appropriations are the two-step whereby the citizens get screwed. Because Congress Critters have only one objective--to get re-elected and make life difficult for anyone who doesn't respect them.

          We organize governments to deliver services and prevent abuse.

          by hannah on Sat Feb 02, 2013 at 10:47:49 AM PST

          [ Parent ]

          •  s/b "considered not unemployed" nt/t (2+ / 0-)
            Recommended by:
            jamess, side pocket

            We organize governments to deliver services and prevent abuse.

            by hannah on Sat Feb 02, 2013 at 10:48:58 AM PST

            [ Parent ]

          •  in italy (1+ / 0-)
            Recommended by:

            it can be cultural. i have a family of friends in italy who are all employed, and none moved out until they got married.

            and you're right that demand economies don't work, but when capitalist economies have demand crises, direct stimulation of demand is necessary. supply side is no more successful than full demand side. there has to be flexibility, and a political willingness to adapt to circumstances. of course, a money-driven political system makes that all but impossible.

            The cold passion for truth hunts in no pack. -Robinson Jeffers

            by Laurence Lewis on Sat Feb 02, 2013 at 11:02:33 AM PST

            [ Parent ]

            •  Who told you (0+ / 0-)

              "Demand economies don't work"? We had one such that worked just fine from 1933 until 1973. It got screwed up by a fantasy brought forward by the business council and accepted as gospel since. Well regulated economies can work quite nicely. I suggest you read "The New Industrial State" by John K Galbraith.


              "If I pay a man enough money to buy my car, he'll buy my car." Henry Ford

              by johnmorris on Sat Feb 02, 2013 at 06:33:22 PM PST

              [ Parent ]

  •  It's my sense that the only thing that is (3+ / 0-)
    Recommended by:
    jamess, side pocket, Odysseus

    different is that they've given what they've been doing for decades a name.

    "Austerity" makes them feel pure like the Puritans, but not quite as silly as Austrians.

    What the financial class is hankering for is a return of 8-10% interest and dividend rates. That's not going to happen because the Federal Reserve has given up the notion that the economy can be "regulated" by simply turning the overnight interest rate up or down.

    The country, as a whole, has already adapted. More and more of our domestic trade and exchange is slipping into the underground economy, where it can't be tracked by governmental agencies. The petty potentates on Capitol Hill keep forgetting that, especially the income tax, is a voluntary system. People don't even have to use money (never mind that cash is untraceable), they can use handshakes or barter on the spot. In intimate relationships, having to change money and keep track of accounts is even a time waster.
    Why did the unemployed Willard have to hire a lawn service to cut his grass?

    We organize governments to deliver services and prevent abuse.

    by hannah on Sat Feb 02, 2013 at 10:35:59 AM PST

  •  Nations are PAYING us, to LEND us money ... (5+ / 0-)

    You see all those minus signs, they mean people are lending us money (once you account for inflation) at negative interest [rates].

    They are PAYING us to hold onto their money -- safely -- because 'We are America' and the world is scary right now.  And we are not scary.

    The time for investing in our infrastructure is now. Right Now.

    Doing anything less, isn't just missing an opportunity -- it is Financial Mismanagement on an epic scale.

    Ezra for Rachel, last July:

    link to video

    "Runways are NOT supposed to be Gooey."
    by jamess -- Jul 27, 2012

    Silly US, for not taking them up on the offer ...

    I guess all our aging bridges and road, and broken water lines, and last century power grids,

    -- They will all just somehow, FIX THEMSELVES ... by Republican osmosis.

    Here's how the game is really Rigged.

    by jamess on Sat Feb 02, 2013 at 10:59:17 AM PST

  •  Stupid Europeans just don't understand. (1+ / 0-)
    Recommended by:

    They need to listen more closely to our President! You can't just slash spending and engage in austerity like that. Rather, you must reduce waste, trim a wide range of carefully selected programs (while protecting the middle class and the most vulnerable among us), reform entitlement programs, and invest for your future in a responsible manner. Add in a pinch of gently asking the wealthiest among you to pay what they consider their fair share during election season if it fits with your electoral strategy.

    That's all it takes! A few well crafted speeches and you're practically almost 3/4 of the way toward reducing your national debt.

    "The Democratic Party is not our friend: it is the only party we can negotiate with."

    by 2020adam on Sat Feb 02, 2013 at 11:41:32 AM PST

  •  The stateless Global Elites don't care... (1+ / 0-)
    Recommended by:

    ...which national economy or economies fall apart. It's just another situation to game and exploit for them. They figure they can always "buy" a safe haven from which to reboot the game.

    When you are right you cannot be too radical; when you are wrong, you cannot be too conservative. --Martin Luther King Jr.

    by Egalitare on Sat Feb 02, 2013 at 01:24:59 PM PST

  •  FYI (0+ / 0-)

    here's is the followup post to this one.

    It drills into the idea of Negative Interest Rates T-Bill:

    aka. "The Flight to Security"

    The World sees our National Debt differently than Austerity Hawks do
    by jamess -- Feb 03, 2013

    Here's how the game is really Rigged.

    by jamess on Mon Feb 04, 2013 at 05:45:16 AM PST

Subscribe or Donate to support Daily Kos.

Click here for the mobile view of the site