Wednesday, October 24, 2012

Return to Austerity Island

A new editorial at the New York Times--entitled simply The Austerity Trap--argues that electing Romney would put the United States on a course similar to that of Greece, contrary to what Romney suggested in the last debate:
In Monday night’s presidential debate, Mitt Romney echoed other Republican politicians, saying that under President Obama’s economic policies, the United States is “heading toward Greece.” Mr. Romney was invoking Greece apparently to make the point that deep and swift budget cuts are needed in the United States to avoid a debt crisis.

That bizarre comment, sadly, is no surprise in a campaign that has parted ways with the facts. The president’s budget, as scored by the Congressional Budget Office, would stabilize the ratio of federal debt to the economy over 10 years.

What is more disturbing is that the comment displays willful ignorance about the lessons of Greece, and such ignorance can only lead to bad policy decisions at home. The lesson that should be learned from Greece is that its fiscal mess has been made far worse by severe budget cuts.
It's been a while since the Austerity Demons have been summoned by the liberal media as a means of attacking Republicans. But with so little left in their quiver--given that new e-mails prove gross White House obfuscation with regard to Benghazi--it is not surprising that liberal pundits in the tank for Obama have returned to this talking point.

And it is beyond hilarious that the CBO would be singled out as some sort of last word on the issue. Remember, this is the same CBO whose predictions are consistently wrong, who has helped lead the nation to the edge of a fiscal cliff.

Greece reached that cliff years ago; it's fall was prevented--foolishly--for years until those actions simply could not be sustained. In that period, massive write-offs of debt destroyed the market for Greek bonds, as investors--both small and large--took it on the chin. The NYT writers argue that the solution is more spending and more taxes, pretending that the problems in EU nations like Greece are the result of budgets that have been "ruthlessly cut." But as I noted in a previous piece (via Veronica de Rugy of Mercatus), no such cutting actually occurred in these nations:

Most of the so-called "savage" or "draconian" cuts have been quite limited. In fact, many of the cuts where actually future cuts, particularly in places like France. What everyone knows--implicitly--to be a foolhardy road continues to be the one recommended by "experts" like the ones cited in the Times story: spend money you don't have, promise to spend less in the future. That program has pushed California to a very similar position Greece was once in: dangling over the cliff, saved from a fall by outside support and budget gimmicks.

San Bernardino joined the ranks of bankrupt California municipalities several months ago and now can no longer make its pension payments:
The city of San Bernardino filed for bankruptcy protection three months ago, and shortly afterward was reported to be under investigation by the federal Securities and Exchange Commission, allegedly for hiding deficits by diverting money intended for sewers, roads and construction to pay ongoing bills instead. 
Now, the Wall Street Journal reports the Inland Empire city of about 210,000 residents "has stopped making its regular payments to the California Public Employees Retirement System" and owes $5.3 million toward its employees' pensions. A San Bernardino official told the Journal the city needs to be put on a payment plan because it doesn't have enough cash to pay its bills.
As the city Treasurer noted:
The city's broke because leaders resorted to accounting tricks, rather than reduce spending as the recession drove down property taxes and sales levies.
The problem is--for EU nations and California, alike--that costs of a recession (i.e. lower revenues) were ignored because of a previous period of high growth. During that period, money was doled out as if it grew on trees and the new spending levels were treated as perfectly reasonable, based on nonsensical expectations about the future: they were already spending more than they were taking in, but justified it by assuming revenues would continue to go up. Forever.

Now, we have people--like those in the Times Op-Ed--who have learned nothing from the past. It's not a Democratic or Republican thing, to be sure, since there were plenty of Republicans more than happy to spend oodles of money, year after year. But now, with reality in the cross-hairs, it is only among the Right, among fiscal conservatives and some Republicans, that this reality is being acknowledged.

Cheers, all.

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