Austerity Does Not Stimulate Economic Growth

The best evidence in support of Keynesian economics and against austerity continues to be Europe which, rather than investing in the economy, is freaked out about debt and has been actively cutting spending to assuage the freak out.

The contraction in the euro-zone economy steepened in August, an advance gauge of activity showed Friday, and the number of unemployed rose to hit a new record high of more than 18 million, adding to recent evidence the euro zone's slide into recession is accelerating.

Retail sales fell in Germany, Spain and Greece, illustrating the impact the debt crisis is having on strong and weak economies alike. A rise in inflation throughout the euro zone is likely to tighten household finances and could make it more awkward for the European Central Bank to loosen monetary policy to support growth.

The Eurocoin indicator--which is intended to estimate quarter-on-quarter changes in gross domestic product and is published well in advance of official data--fell to -0.33% in August from -0.24% in July, the CEPR and the Bank of Italy said Friday. That is the lowest level since July 2009, just after the euro zone pulled out of its last recession.

Really wonky for a Sunday hangover morning, but hey -- this is massive evidence against the Romney/Ryan plan to focus exclusively on the debt at the expense of investment in the economy. If you want to see American's future under a Romney presidency, look at Europe.

  • mrbrink

    Sovereignty is dead. You do what the multinational banks tell you to do, or you get cut off.

    On the bright side, a AAA+ credit rating tastes great when served with human suffering.

    • mdblanche

      And yet the US’s AA+ rating commands an almost negative interest rate.

      • mrbrink

        That’s a great reason why it’s ridiculous to be doing austerity right now.

  • rob black

    I wonder how many times the various governments of the world are going to have to go through the same stupid recession, unemployment, self inflicted austerity further stifling recovery… finally reviving the economy through govt. investment.. before they figure this out. They could save their citizens and the global suffering index a lot of grief by just going to Japan and asking them: Hey, what happened to you guys in the 90’s?
    Oh, you prolonged your economic misery for a decade, by slashing government spending to the bone? Well, then…lets all do that…because it works so well……

    • muselet

      Agreed, but politicians, policy-makers and a certain breed of economist can always convince themselves and one another that This Time Is Different!

      Japan’s Lost Decade? That was caused by a demographic shift in the population, not by disastrously wrong-headed economic policy.

      The slow-motion implosion of the Eurozone? That’s being caused by lazy Spaniards (and Greeks and Portuguese and Irish and everyone else who’s not German or French), not by disastrously wrong-headed economic policy.

      There is nothing for us to learn from those events. This Time Is Different! If we cut government spending and investment deeply enough, our economy will grow like never before. It’s never happened before, but This Time Is Different! This time, cutting jobs will increase jobs! This time, cutting taxes will increase revenues! This time, austerity will lead to prosperity! But it won’t happen if you don’t clap harder! Clap harder and really believe!

      If it hadn’t ended disastrously the first time it was tried, I’d suggest loading the lot of them onto the ‘B’ Ark …


      • mdblanche

        We have the Republicans in this country to do that. What’s everyone else’s excuse?

  • Brutlyhonest

    Silly rabbit, all of Europe’s problems are caused by overly generous socialist programs. Especially universal healthcare. If they would just let people lose everything they own when they get sick and/or die from lack of healthcare they’d be much better off.

    Also, too: Immigrants.

  • Treading_Water

    Imagine that, a government that generates less money actually creates less revenue?
    You would have to be one of those reality-based fact checkers to believe that.