The villains in Europe are the Germans, but this time they don’t deserve it. They’ve been telling countries like Greece and Spain, who have for years been living well beyond their means, that if they want Germany to restructure their debt (in effect, write it off), then they’ll have to cut back on their outrageous government expenditures (austerity). In response, there’s been rioting in the streets, precipitated by left-wing big-government types who are demanding an end to the cutbacks. The marching protesters want their due no matter who pays the tariff. They want unrealistic promises fulfilled even if the rest of their country suffers.
In truth, eliminating debt financing is like weaning yourself off heroin. There are withdrawal symptoms that take time to overcome. The disappearance of the false high of fake money slows down the economy, and causes changes in the job markets. Put simply, that’s why Europe is again on the verge of recession. The only alternative is reckless and irresponsible spending, but this strategy always results in the disaster of excessive inflation. The Germans are trying to cure the spending addiction slowly, a sensible policy choice much wiser than any alternative. But let us be clear all this government spending squeezes out the private sector crippling it from growing. That has been proven time and again.
And, yet, many economists claim that this is exactly the wrong policy, insisting that you can’t turn off the spigot and that you must grow (stimulate) your way to prosperity. Professor Paul Krugman hammers this point weekly in the New York Times, and professor Lawrence Summers echoes the sentiment in the Washington Post. They are relishing the victory of a socialist in France who wants to spend and spend in rejection of “austerity.” Both are well-known economists who argue that Europe shouldn’t cut back, but their real target is those in Washington who are demanding responsible budgets. Several of their colleagues who are of the same mindset are already hammering Republican plans for budget cuts as harmful to growth.
This meager human, armed not with an economics degree but with just plain old American common sense, challenges that theory. Their proposals are hogwash, and they inevitably lead to perpetual spending well beyond our means. David Axelrod claims that the Obama budgets will become more stable with increased revenues, bringing the annual deficit down to 3% of GDP, a level he insists that “economists all agree is manageable.” So apparently these highly educated individuals “all agree” that our federal government can run a $300 to $400 billion deficit every year without any negative ramifications. Common sense tells me that these people are not only wrong – they’re nuts!
The problem with stimulus spending – at least in its original Keynesian theory – is that it has to both start from and end with a balanced budget. But in fact, our federal budget hasn’t been balanced since 1957; even our budgets in the late 1990’s were “balanced” with money borrowed from the Social Security Trust Fund. So every time we face a crisis, we‘re already spending like the proverbial drunken sailor. We never really get back to point zero.
You can get an economist to give you just about any answer you want to achieve. The fact that so many can sit there with a straight face and claim that a national debt of 70% or 80% or 90% of GDP is quite acceptable just boggles my mind, and I hope it does yours. Unfortunately, economists have become as credible as weathermen on the local news.
The rain falling on me cannot be real because I was told last night that it would be sunny today. What Congressman Brooks said to Ms. Brewer made perfect sense to me even before I knew that he had any degrees. And I’m equally certain that massive stimulus spending is inevitably going to lead to significant cuts in services, staggering inflation, or national bankruptcy.