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Economics

The Dangers of Obsessing Over Budget Deficits

Please check out my latest which is up at thegrio.com and warns against the obsession with austerity, and how Europe provides a lesson which should be heeded for people in the US, especially African-Americans.  Below is an excerpt, but you can find the full piece here.

It’s rather distressing to see as Europe is starting to show signs of moving away from austerity given it’s lackluster results, both Democrats and Republicans are ramping up their efforts to follow them down that rabbit hole.  France and Greece rejected their previous governments over the past few weeks as France’s new president promised “a new pact” which is more pro-growth than the previous Merkozy policy of “all austerity, all the time.”  At the same time, Greece appears increasingly likely to exit the Eurozone instead of continuing to be told to cut cut cut by Germany and the ECB.

Yet somehow this has not deterred US policymakers from continuing their failed attempts to implement similar deficit reduction policies which have seemingly failed across the Atlantic.  Between Obama’s continued dalliances with Boehner for “grand bargains,” Paul Ryan’s roadmap to “reform” Medicare and Medicaid, and “fiscal cliffs” at the end of 2012, it seems like everywhere you turn in Washington, deficit reduction remains at the top of the agenda

As I write in the piece…

But this deficit-cutting focus could have severe negative effects, particularly for African-Americans. Look at what’s happened in Europe. Led by Britain, Germany and France, countries all over the continent implemented austerity programs which restrain spending over the last three years.

The results of these policy choices are beginning to be realized. Ireland’s economy reacted to austerity by falling into a double-dip recession at the end of 2011. The first quarter of 2012 saw UK and Spain follow suit. At the end of 2011, the unemployment rate for the entire Eurozone was 10.9 percent, with the countries that have been especially hard hit by austerity, including Spain (21.7 percent), Greece (17.8 percent), Ireland (14.4 percent) and Portugal (12.9 percent), at even higher levels. 2012 has only seen the economic situation in Europe deteriorate further.

In comparison, while not ideal, the US is faring better than Europe, with economic growth of 2.2 percent in the first quarter of 2012 and the unemployment rate of 8.1%.

As a result, instead of learning our lesson either by way of the Great Depression in the 1930s or the more recent case of Europe, as with so many other things, facts do not seem to be getting in the way of the austerity train, even when they come from the mouths of such prominent and respected people as Paul Krugman, Christina Romer, Kenneth Rogoff and Bill Gross.  So, despite several unsuccessful attempts in 2011 to achieve a “grand bargain” of deficit reduction, austerity remains one of the very few areas that both Republicans and Democrats appear to agree is a priority – the only difference (which I go into detail in the article), and it is an extremely important difference, is the areas to be cut, as well as the  depth and timing.

As the saying goes…history tends to repeat itself.  And that’s unfortunate.

 

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