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.