Foot on the Gas, Foot on the Brake — why aren’t we getting anywhere?

I was in London this week. Like most capital cities, the business center still looks prosperous: foreign capital is still fueling wining and dining and consumption and construction. Yet in the country at large, austerity policies are fueling a recessionary spiral. It is so bad that even the Bank of England is talking of major loosening, emulating the ECB, the Fed, and the Bank of Japan in running the printing presses to try to create broader demands for goods and services.

This strange parallel to the US was followed tonight in France. There, the latest purchasing manager’s index shows the sharpest economic contraction since 2009. Growth forecasts for France have been cut from a weak 0.8% for this year to a near-recessionary 0.1%. This comes on top of a major downturn in Germany last quarter, and global weakness (see my previous post). Yet what is France’s policy response? A desperate further tightening to meet a completely arbitrary 3% deficit target by cutting government spending even further.

All major economies are now defying logic by stepping on the fiscal brakes, hard (austerity) while their central banks step on the gas by pursuing an incredibly loose monetary policy. Yet since all the major economies are trying to climb a hill, to get out of the slump produced by the 2008 crash, they are going nowhere.

What is worse is that a large number of experts are now saying clearly that this is all complete madness; that what is needed is growth, and for growth there must be investment not austerity. A new growth commission report for the UK, published by the LSE last month, makes the case plain as day.

Yet for some reason, politicians refuse to heed this wisdom, persisting in austerity policies that have been proven by careful analysis of the last few years to be making things ever worse.

Imagine, if you will, that someone told European politicians that just a little bit of human sacrifice would cure their problems — kill one in every ten people, let the rest inherit the other’s wealth, and voila — an increase in purchasing power per person will be produced that will jump-start their economies. Absurd? How about politicans adopting policies that deprive one in four southern Europeans of their livelihoods, ruining their lives, families, and futures? But that is OK?

Why? Even if it would work, it would be just as immoral as the human sacrifice; indeed it sacrifices people’s lives but only in a slower, more drawn-out fashion.  But it doesn’t work, and is just as much blind faith and superstition overruling knowledge as was the Aztecs’ practice of cutting out people’s hearts in order to gain larger crops.  Today we see in Europe and the US the same kind of faith in suffering as necessary to bring economic gains, bringing the same foolish, immoral, and tragic results.

About jackgoldstone

Hazel Professor of Public Policy at George Mason University
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