A while back I wrote a post on the similarities between the austerity measures in Britain and in NZ, and the all too predictable outcome of economic stagnation and increasing hardship in both countries. No surprise of course to find a similar analysis of the situation in America:
The Austerity Death Trap
Ron Paul’s newly-unveiled economic plan – promising to cut $1 trillion from the federal budget in year one (presumably that means 2013) – is only slightly more ambitious than what we’re hearing from other Republican candidates. They’re all calling for major spending cuts starting as soon as possible. What are they smoking?
Can we just put ideology aside for a moment and be clear about the facts? Consumer spending (70 percent of the economy) is flat or dropping because consumers are losing their jobs and wages, and don’t have the dough. And businesses aren’t hiring because they don’t have enough customers.
The only way out of this vicious cycle is for the government – the spender of last resort – to boost the economy. The regressives are all calling for the opposite. … The result will be the most stringent fiscal tightening of any large economy in the world. … It will come at a time when 25 million are Americans looking for full-time work, median incomes are dropping, home foreclosures rising, and a record 37 percent of American families with young children are in poverty. To call this economic lunacy is to understate the point. …
Even if you’re a deficit hawk this is nuts. Instead of reducing the ratio of debt to the size of the overall economy, this strategy increases the ratio because it causes the economy to shrink.
Call it the austerity death trap.
Under these circumstances, the harder a country works to cut its debt, the worse the ratio becomes — because the economy shrinks even faster.
Greece is already in the trap. Spain and Italy are perilously close. Even Britain, France, and Germany are tip-toeing up to it. And now us.
Deficit hawks have to understand: The first step must be to revive growth and jobs. That way, revenues increase and the debt/GDP ratio drops. Only then – when the economy is back on track – do you start cutting. …
As each party sets out its policy for the coming election look carefully to see what they will to stimulate sustainable growth and jobs. Look for recognition that we live in a resource limited world, facing huge challenges in the form of peak oil and climate change. Look for economic competence and a willingness to try new ideas, rather than muddling along deeper into the austerity death trap. Our country deserves better than three more years of ineptitude and stagnation.