Howard Schneider is not just right to if austerity has killed Europe’s economy, but to apply that lesson to the US. After all, the continuing misery in the job market is uniquely tied to the decay of state and local government job loss. If the public sector were growing at the level of population, we would see unemployment almost a full point lower. The crisis in state and local budgets, as well as federally enforced austerity, is a primary culprit in the loss of jobs.
And this is simple supply and demand. If you suck hundreds of billions of dollars out of European economies, demand will fall and economic growth will collapse. We don’t have to guess at this, it’s happening right now:
In Spain, for instance, where the parliament this week is voting to place constitutional limits on government deficits in a bid to reassure global investors, some analysts say the country is taking the wrong medicine. Spain’s debt level remains lower than even that of Germany, the continent’s strongest economy and one of the world’s benchmark credit risks. But Spain’s unemployment rate is more than double that of the United States, and some economists say the country needs a healthy dose of policies to restore growth, not constrain it.
The International Monetary Fund, which has generally encouraged “fiscal consolidation” in euro-zone countries, has noted that budget cutting undermines growth and employment. The impact is even more pronounced if many countries are cutting at once and central bank policies are not geared toward growth — just the path Europe is following, according to the IMF.
Christine Lagarde, the new head of the IMF, has been speaking up about this lately.
Guess what? There’s another model out there. There’s a country which reacted to a severe economic downturn by growing government, and has thrived as a result. Look to Argentina.
Argentina is not without problems, but its recent economic record speaks for itself: the economy has grown by over 6 percent a year for seven of the last eight years, unemployment has been cut to under 8 percent today from over 20 percent in 2002, and the poverty level has fallen by almost half over the last decade [...]
Argentina has regained its prosperity partly out of dumb luck: a commodity price boom has vastly benefitted this soy, corn and wheat producer. But it has also prospered thanks to smart economic measures. The government intervened to keep the value of its currency low, which boosts local industry by making Argentina’s exports cheaper abroad while keeping foreign imports expensive.
It then taxed those imports and exports, using the money to pay for a New Deal-like public works binge, increasing government spending to 25 percent of G.D.P. today from 14 percent in 2003. As a result, the country has 400,000 new low-income housing units, as well as a long-delayed, 235-mile highway between the northern cities of Rosario and Córdoba.
It has also strengthened its social safety net: the Universal Child Allowance, started in 2009 with support from both the ruling party and the opposition, gives 1.9 million low-income families a monthly stipend of about $42 per child, which helps increase consumption. Because the amount depends in part on how often the child attends school, it is also likely to improve the country’s long-term educational performance.
So monetary intervention to reduce currency values, taxation and transfer to public works spending, and a strengthening of the social safety net. And it has worked! Who knew?
It took a couple decades of terrible economic output through austerity for Argentines to demand a better system. IMF-forced austerity sunk the economy; reversing those measures has sent it soaring.
Not every country is the same, but clearly there are lessons here. There’s a clear connection between infrastructure improvements and job creation. Providing a trillion dollars in infrastructure funding over five years would reverse local jobs losses, increase productivity, attracting global business and enhance quality of life. And borrowing costs are free right now.
Instead, we have the potential for a total federal cut-off of infrastructure jobs, in terms of highway funding, at the end of the month. 1.8 million jobs could be lost in the blink of an eye. Even if we somehow find agreement on extending the highway fund, we are unlikely to progress with new infrastructure spending, because Republicans are dedicated to the President’s failure.
But it’s worth noting that there are lessons all around the world about how to deal with a troubled economy. And they point in the direction of job creation through public investment, not austerity.




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One of the reasons unemployment is so bad in Spain is that 33% of workers are temps. That’s double most other countries.
With Obamacare there will be incentive for employers to shift to part-time work in order to avoid the mandate. This could lead to even higher unemployment during future recessions.
To which our elected representatives respond:
lalalalalalalalashutupshutupshutup!
With fingers in ears and eyes closed, of course.
gee how topical
not
Argentina also has better futbol players, and some amazingly attractive women, in addition to a much stronger sense of shared nationhood and popular solidarity.
Better steak, too.
It won’t be long before the Corporations go on huge 24/7 ad campaigns to tell Americans how good they are. You know, similar to the J&J ones where they say they use pure botanicals and are eco friendly.
Don’t believe it. It’s in their text book of plans.
DAYEN: the problem is not that there is a lack of obvious rationale for various public works expenditures, green jobs programs, all of it. The need for this spending is obvious to anyone who can do basic arithmetic and reads a national newspaper at least once a week in general on an ongoing basis.
The problems are:
1) The plutocracy in the US does not want the broad public to ever ever ever see the government successfully intervene through regulation and spending to make life better for the working people. This threatens their domination of our society because fundamentally there is an election process here, as much as it has been reduced to a joke in recent decades.
2) The priority in economic management in the US is to maximize the short-term wealth gains of the richest members of society. When it comes to the government spending, the goal here is to de-tax the rich as much as possible, remove from taxation their primary instrument for making themselves richer, the corporation, and to otherwise de-regulate across any industrial sector including the finance sector when that regulation impedes upwards wealth transfer or simple short-term money-making.
Public works, etc., requires increases in taxes where money can be easily tapped, regulations, the government visibly making things better, etc etc etc etc
Please keep hammering this point D Day eventually if you repeat something often enough at the Lake people in power sometimes take notice.
It’s real easy: kill your TV.
I did when I was 17.
BUT DO THEY HAVE ANY INFLATION?????
Answers! How to create jobs and infrastructure. or will they want to bring in Chinese labor to build it? Gah!
Good ideas. With more payrolls lower deficit. Then we can replace the stolen money back to Social Security TRUST fund!
of course they have inflation. moderate inflation is a sign of a healthy economy and a component of economic growth (rising demand pushing prices upward). It’s not 1973-1983. That was a crisis of falling profits due to wage inflation domestically and increasing global competition as Europe and Japan had rebuilt and a number of developing nations were actually still developing. This 2007-2011 crisis is akin to the 1930s. wages are stagnant and falling, fixed costs for business have risen and marginal prices have fallen. It is a mediated case of overproduction where the public sector has kept the economy from going all 1932, so far. Give Obama and the Republicans 4 more years and we will get to 20% unemployment and a vicious cycle of price deflation.
So is Obama. I believe he knows it too. He also knows he will be richly rewarded for his cooperation when he leaves office in 2013. It won’t be middle-class people who’ll be paying him millions of dollars in speaking fees, so f**k y’all.
In 17 months the Republicans will have to do it without their comrade Obama.
Note that the taxes they raised were on everyone, not the so-called rich, through higher import duties. If you want to go that route, and institute a some sort of consumption tax, bring it on. Sont single out the producers to shoulder the burden.
By the way, this is a country that confiscated private pension and savings accounts years ago, to fund a previous round of spending binges. That put the country into a decade of downward spiral for the economy.
That’s stupid!! They don’t even talk good English down there. They’re illegal aliens and stuff. We need more Christians to have more jobs.
“Although it is true that only about 20 percent of American workers are in unions, that 20 percent sets the standards across the board in salaries, benefits and working conditions. If you are making a decent salary in a non-union company, you owe that to the unions. One thing that corporations do not do is give out money out of the goodness of their hearts.” Molly Ivins
Debating Job Models is all Academic. You can’t rely on politicans to solve the job problem in America. Labor Unions have the power (but not the will)to bring US Corporations to the bargaining table on keeping a fair balance of manufacturing jobs in the US. Its the ILS Unions and The Teamsters who unload and move the foreign Containers around. If all the labor unions would unite together (including the public unions)then a US job voice will be heard loud and clear. Politicians will keep talking and debating and talking and debating and nothing will be solved. The time for talk is over. A National Labor Strike will force everyone to the bargaining table.
That is an obnoxious lie. Even if the greedy looters decide to shift to part time that is not a problem because we can mandate 40 hour work weeks via legislation. I understand that some may indeed attempt to ‘game’ the system, however your disrespect fails to account for the rule of law. If we make the law, they will follow it.
If any of you want a good laugh, check out the link I’m about to provide. It is for a debate where some nutbag idiot will get creamed by an intelligent person. I love it when smart people teach idiots a lesson.http://academy.mises.org/courses/murphy-smith/
Lean on Ben campaign
proposed here http://tarpley.net/world-crisis-radio/
sept 13, 2011 show, end of audio
the president (maybe not this one)
tell fed reserve helicopter Ben-
loan $1 trillion to states for infrastructure
zero percent 50 year loan states pay businesses, pay union wage
provides capitol investment, will make 15 million jobs
no spending no borrowing
see his 5 point program also
Let see, what is the definition of inflation?
Maybe inflation is when the things you need to buy are more expensive than you can afford, if you have a job, or is it when the Government keeps tell you there is no inflation. It would be great if we all had a printing press.
I digress.
Believe what everything that’s going on took a long time to create.
Until the Government fixes the housing problem(which they had a hand in it, we are not going to see any stability in the economy. Until we start creating manufacturing jobs, not services jobs, we will not see stability.
We need the truth from our leaders of Government about inflation, we need more transparency not more rhetoric, truth should be the American way.
We are, collectively the recipients of what we have sawed! Shame on us for not paying attention and taking things for granted.
The areas where infrastructure would make the most sense is in areas with the greatest ability to grow their economies. Generally those would be the areas with the lowest and not the highest unemployment.
Greece, Spain and Portugal all had giant infrastructure programs in the 90′s. The problem is the education levels and individual productivity and enttrepreneurial talent was not there, and all that infrastructure did not lead to meaningful and lasting jobs. Had that infrastructure money been spent in Germany, it would currently be being utilized.
so the facts are that putting new and better highways and bridges in Michigan wouldn’t bring a long lasting uptick to the economy there….the cities are shrinking, the jobs have left, and they ain’t coming back. Offering the unemployed of Michigan and California jobs in Texas and North Dakota on infrastructure projects at $14 an hour (which is more than they would take home on welfare), would actually have long term benefits.
Just to break some more allusions about Argentina….the jobs there aren’t union scale….neither were those in the New Deal. And the obsession with the debt, is mainly because there is no belief that the government could ever institute something like a “one time expenditure”….everything, once implemented seems to be something that can never be parted with.