Wednesday, February 2, 2011

Cutting Off Their Noses

With all the chatter over Michele Bachmann’s “response” to President Obama’s State of the Union Address, the official Republican response was almost completely overlooked by yours truly. Almost, I said.

Paul Ryan made the usual, typical Republican claims: government bad, private sector good. And certainly no one who listened should’ve been surprised that the GOP response would be anything different. But what was “interesting” about Ryan’s retort wasn’t so much his anti-big government slant, but rather his comparison of Europe with America and how America is following in Europe’s footsteps. Ryan highlighted three specific countries in Europe – Greece, Ireland and the United Kingdom – as nations that didn’t “act soon enough” to control runaway spending and, as a consequence, “have been forced to impose painful austerity measures: large benefit cuts to seniors and huge tax increases on everybody.” Interesting analysis, but wrong.

In a New York Times’ op-ed piece titled “Their Own Private Europe,” Paul Krugman calls Ryan and his ilk out. Europe, it seems, is not even remotely close to what the GOP envisions it as being. While the Greece example is “more or less true,” the other two examples “refute” conservative claims completely. Krugman elaborates, first on Ireland, then Great Britain.

“On the eve of the financial crisis, conservatives had nothing but praise for Ireland, a low-tax, low-spending country by European standards. The Heritage Foundation’s Index of Economic Freedom ranked it above every other Western nation. In 2006, George Osborne, now Britain’s chancellor of the Exchequer, declared Ireland ‘a shining example of the art of the possible in long-term economic policy making.’ And the truth was that in 2006-2007 Ireland was running a budget surplus, and had one of the lowest debt levels in the advanced world.

“So what went wrong? The answer is: out-of-control banks; Irish banks ran wild during the good years, creating a huge property bubble. When the bubble burst, revenue collapsed, causing the deficit to surge, while public debt exploded because the government ended up taking over bank debts. And harsh spending cuts, while they have led to huge job losses, have failed to restore confidence.

“The lesson of the Irish debacle, then, is very nearly the opposite of what Mr. Ryan would have us believe. It doesn’t say ‘cut spending now, or bad things will happen’; it says that balanced budgets won’t protect you from crisis if you don’t effectively regulate your banks — a point made in the newly released report of the Financial Crisis Inquiry Commission, which concludes that ‘30 years of deregulation and reliance on self-regulation’ helped create our own catastrophe. Have I mentioned that Republicans are doing everything they can to undermine financial reform?

“What about Britain? Well, contrary to what Mr. Ryan seemed to imply, Britain has not, in fact, suffered a debt crisis. True, David Cameron, who became prime minister last May, has made a sharp turn toward fiscal austerity. But that was a choice, not a response to market pressure.

“And underlying that choice was the new British government’s adherence to the same theory offered by Republicans to justify their demand for immediate spending cuts here — the claim that slashing government spending in the face of a depressed economy will actually help growth rather than hurt it.

“So how’s that theory looking? Not good. The British economy, which seemed to be recovering earlier in 2010, turned down again in the fourth quarter. Yes, weather was a factor, and, no, you shouldn’t read too much into one quarter’s numbers. But there’s certainly no sign of the surging private-sector confidence that was supposed to offset the direct effects of eliminating half-a-million government jobs. And, as a result, there’s no comfort in the British experience for Republican claims that the United States needs spending cuts in the face of mass unemployment.”

With all the data in front of their eyes, Republicans still seem hell-bent on starving the engine that, at least for the moment, is keeping the economy from collapsing in on itself. What Ryan and his fellow cohorts can’t seem to understand is that while, in the long run, deficit spending has inherent risks that could bring about dire consequences, in the short term, it has proven to be an effective way to climb out of a hole. Massive spending cuts at this juncture, while politically popular, are akin to cutting off one’s nose to spite their face. Just ask Andrew Cuomo, who is about to lay off thousands of state employees in order to balance New York's budget. Now times that by fifty.

There is a staggering disconnect between facts and preconceived notions swirling around the electorate – a naïve belief that somehow, magically the great engine of capitalism will restart itself once the tyranny of big government is removed from its path. That mindset now threatens an extremely fragile recovery and if followed through will undoubtedly plunge the economy back to where it was in the beginning of 2009, only this time with no stimulus to backstop the slide. Hello 1929.

Even after all these years the Hoover apologists are alive and well and still peddling their drivel. Until quite recently, most of the country dismissed it. That it has gained traction over the last two years is proof positive that no matter how many times you bury a bone, some mutt can always dig it up and make you chase him around the yard trying to grab it from its mouth.

1 comment:

steve said...

Thanks, Pete. It is staggering to consider, here we are well into year 3 of a huge recession and the main cause (big unregulated banks) are still bullying their way around Congress. But then, they do own the place. We ought to take a page from Tahrir Square.