Posted: Apr 30, 2013 4:50 am
Ands still it goes on ...
Reality 1, Austerity 0
Posted: 04/28/2013 10:26 pm
By Robert Kuttner
http://www.huffingtonpost.com/robert-ku ... 75931.html
It's been a very bad week for the merchants of austerity.
In Europe, the just-released statistics on first quarter performance show EU nations sliding deeper into recession. In Spain and Greece, unemployment rates are approaching a staggering 30 percent. In Britain, the Tory government took as good news the fact that the UK managed to eke out 0.3 percent growth. Even Germany, the prime sponsor of these policies, is on the edge of recession.
One nation after another is challenging German Chancellor Angela Merkel and the European Central Bank, the two lead purveyors of economic pain as the cure for fiscal sin. The governments of France, Italy, Spain and Portugal are pressing Merkel to relent, and EU Commission President Jose Manuel Barroso, the ultimate weathervane, now says the EU needs to focus on growth instead of belt-tightening. The International Monetary Fund, usually one of the sponsors of fiscal masochism, says Europe is imposing too much pain.
Here is the U.S., the first quarter numbers were lousy. The economy grew at a rate of just 2.5 percent, less than forecasters projected, and not enough to improve the unemployment rate or raise wages. Analysts across the spectrum correctly blamed the slowdown on the sequester, which cut the budget by $85 billion this year, on top of the January deal that raised taxes, mostly on workers, by another $200 billion.
You don't promote growth by slashing demand. Supposedly, fiscal tightening improves business confidence. But if some entrepreneur somewhere decided to break ground for a new factory because the president and Congress at last cut the budget, nobody could find such a person.
Even the Washington Post editorial page, which has long been promoting a budget bargain built on more cuts, warned in its lead Sunday editorial, that austerity is pinching too hard -- in Europe, that is. How about at home?
And Ken Rogoff and Carmen Reinhardt had a really terrible week. Their now infamous 2010 claim that nations get into economic trouble when their debt ratios exceed 90 percent of GDP was blown to hell by a graduate student at the University of Massachusetts. For three years, critics have been pressing R&R to share their raw data. When Thomas Herndon and colleagues Michael Ash and Robert Pollin finally got hold of the research and reworked R&R's numbers, it turned out that they had selectively used data and made basic errors of arithmetic.
Far from corroborating R&R's claim that countries with debt ratios above 90 percent have growth significantly lower than those with lower levels, the reworking revealed the opposite.
[Continues ...