When the U.S. has a Republican president, GOP members of congress are among the world’s biggest Keynesians. Witness the eight year spending spree under the Bush administration, where congress approved of two wars and a huge Medicare prescription drug benefit without providing a method to pay for any of them. But now that a Democrat occupies 1600 Pennsylvania Avenue, Republicans in congress have become “deficit hawks.” Never mind that the country has an ongoing jobs crisis. Never mind that the gap between “haves” and “have-nots” is one of the largest in the industrialized world and is still growing. Never mind that every time a progressive politician proposes a program that requires new spending Republicans cry foul and lament that they don’t want to see the United States “going the way of Greece.” Despite all of their contempt for European style parliamentary democracy and the social welfare programs that are part of it, Republicans have found something they love about Europe: austerity.
Thanks to the budget crises that threatened to destroy the Eurozone, governments across Europe, under pressure from the IMF and the multinational banks, have instituted a variety of austerity measures, which generally include large cuts to services and substantial tax increases. Despite evidence presented by Martin Wolf in the Financial Times, Paul Krugman in the New York Times, and others that austerity is hurting GDP and economic growth in the Eurozone, Republicans (and some Democrats) want to push ahead with an austerity program in the United States.
The chart below shows the damage that austerity programs have done to Eurozone GDP growth. In Europe, Greece has instituted the most severe austerity measures, and has seen the biggest decline in GDP. At the other end of the spectrum, Austria, Germany, and France have done very little budget tightening in the name of austerity, and have seen small growth in GDP. Finland, The Netherlands, Belgium, and the Slovak Republic have increased government spending and have seen either an increase in GDP or only a small decline, much smaller than the decline occurring in countries with the harshest austerity measures.
America’s soon to be implemented austerity program is the budget sequester. In case you have forgotten, the sequester came out of negotiations over the debt ceiling increase in 2011. Democrats simply wanted to pass the increase in the debt ceiling, but Republicans insisted on spending cuts tied to it. The result of negotiations was the sequester, which both sides hoped would be so distasteful that neither would want it to go into effect: Republicans would see a huge cut in Pentagon spending, and Democrats would see sizable cuts to domestic programs. The Center On Budget and Policy Priorities gives a detailed explanation of the sequester and its effects in an article from last April.
Never ones to let evidence stand in the way of implementing a bad idea, Republicans in the House of Representatives (and some Democrats), seem ready to let the sequestration cuts go into effect next month. Anti-tax guru Grover Norquist, speaking to Newsmax.com indicated that he believes that sequestration will take place. The Bipartisan Policy Center estimates that these cuts will result in the loss of up to a million jobs in the year after they take effect. Despite the predicted impact on the economy, neither side appeared to be paying much attention to the issue until President Obama and House Speaker John Boehner traded jabs about it yesterday.
The economies of the United States and Europe are largely consumer driven. That means that when consumer demand dries up, the economy slows down. There is ample evidence to show that Keynes was right: when consumers spend less, the government needs to step in and spend more in order to pick up the slack. Republicans, still in thrall to “supply side” economic theory, continue to reject the idea of increased government spending as a way of growing out of a recession and still think that the way to grow the economy is to cut taxes on business and the wealthy, despite ample evidence over the past thirty years that supply side economics does not work.
Instead of giving Americans the best of Europe: universal health care, mass transit, infrastructure, etc., Republicans appear ready to present us with the worst of Europe: austerity.