Could austerity be the right cure for Europe's hangover?
(CNN) -- I never imagined we would find a no-win question to displace the genre's champ, "Have you stopped beating your wife?" Now, there is contender: "Does austerity work?"
Fareed Zakaria tells us it doesn't, faulting it for Europe's constriction. The problem is not a borderless European financial system, unable to quarantine nations sick with public and private debt. Oh, no, Zakaria writes, "The larger failure, shared across Europe, has been too much austerity."
In the Washington Post, Ezra Klein notes unemployment is "skyrocketing" across Europe and he contends the fault lies in shrinking budget deficits brought by spending cuts and tax increases. Klein tells us this is what austerity looks like "and it can be expected to reduce economic growth."
As the UK slides into a double-dip recession, economist Paul Krugman blames David Cameron's austerity. Borrowing from John Maynard Keynes, he tells us, "The boom, not the slump, is the right time for austerity."
Never mind that spending in Britain is virtually unchanged and other nations in Europe are spending more. Neal Reynolds writes that "austerity," as practiced in Euro27 countries, has actually increased government spending from 46% to 51% of Europe's GDP from 2006 to 2010.
Greece, where rioters protest "austeros," increased its public sector expenditures from 45.2 % of GDP to 50.1% tin he same period. As the Richmond Times-Dispatch noted, in 2011, 23 of the EU's 27 nations jacked up their spending levels. This year 24 will. Apparently, it is not austerity itself that constricts economies. The mere thought of austerity is enough to choke the eurozone to death.
Austerity seems to be working just fine for the masters of the practice, the Germans: We are counting on them to bail out the entire eurozone.
[...]
On June 17, the world will come to an end, as it often does. Ripples from Europe's unraveling will begin traveling to America. Greece will have an election. Greeks will vote to make Germans work until they are 67 so they can retire at 50. They will vote to make someone else pay their bills, fund their holidays and support their benefits.
They will be lectured about this by an American president who asks his own nation to make China pay its bills, fund its holidays and support its benefits. We can only hope he does it from the Hellenic state of California, which has also attempted to outsmart austerity. Remarkably, it hasn't grown jobs, just debt. [...]
Those who complain the most about austerity, are the ones who won't practice it. And they are the ones who are in shit-street financially, wanting someone else to bail them out. The rest of the article explains perfectly why they won't get gain, can't get gain, without some austerity pain first, because they spent (and continue to spend) money they didn't (and still don't) have. Castellanos says that asking whether austerity works is like asking a drinker if sobriety works. Those who are on a binge, (be it spending or drinking) aren't likely to agree.
Austerity alone isn't the answer though, to get things moving again. Jeffery Miron, a senior fellow at the Cato Institute, offers this:
How to get economy growing fast
Cambridge, Massachusetts (CNN) -- In a recent discussion of what his administration might accomplish, Mitt Romney claimed that "by virtue of the policies that we put in place, we'd get the unemployment rate down to 6%, and perhaps a little lower," over a period of four years.
Is this goal attainable?
It is. Indeed, it is not that tough a task. If the United States avoids new growth-retarding policies, such as the tax hikes scheduled for January 1, the economy's natural adjustments will lower unemployment substantially. These include downward adjustments in wages, reallocation of job-seekers from slower to faster growing sectors and regions, reduced in-migration plus increased out-migration, and withdrawals from the labor force.
These adjustments do not always work quickly or for everyone (not every former construction worker can become a computer technician). But history suggests the adjustments do occur, as they have since the recession began. Over the next four years, they will continue to lower the unemployment rate, if not to 6%, at least near that territory.
The more important task for either presidential candidate is restoring the economy to its prerecession growth path. Real GDP has historically grown about 3% per year, and major downturns have been followed by strong recoveries. Within two to three years, therefore, output is typically "back where it would have been."
In this recession, the rapid recovery phase has so far been absent; real GDP is still well below where one would have predicted pre-2008, and with average growth under 3% since the recession ended, the gap grows larger every quarter.
So can Romney, or anyone, get us back to a higher growth rate? Yes. Here is a program that will restore U.S. economic performance: [...]
Miron goes on to list eight reforms that are needed, that make good sense. I suspect some Republicans may have a problem with #4, but the world is changing, including American demographics, and we're going to have to adapt to what IS.
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