At last Monday’s debate Mitt Romney said the United States is “heading toward Greece.” That remark was filled with bitter ironies, not the least of which is the fact that the world’s current economic miseries were triggered by financial speculators like Romney himself. And while Romney says his harsh economic policies are designed to reduce the national debt, we now have proof they’ll have the opposite effect.
European austerity, like its American counterpart, isn’t just morally wrong: It’s also self-defeating.
Nations like Greece aren’t just wracked with sky-high unemployment, endangered by full-scale depression, and experiencing the first throes of social disintegration. They’re also struggling with soaring debt. That why even the International Monetary Fund, hardly a bastion of leftist dissidence, has turned against Romney-style austerity.
The United States isn’t immune from contagion if Romney and Ryan enact a full-blown austerity program. The riot-torn streets and malarial villages of Greece could become our nation’s future.
Austerity Increases Debt
Here’s how that happens: When a country’s economy is collapsing from within, investors don’t feel as safe lending it money and its interest rates go up. When it goes up too quickly it increases the overall national debt. And if the austerity measures also inhibit economic growth, government debt becomes a larger percentage of the overall economy. That’s what’s happening in Europe’s troubled countries.
Where it isn’t happening is here in the United States, even though the austerity mavens have been warning us for years that we’ll see our interest rates soar unless we immediately — immediately! — enact the kinds of steep spending cuts we’ve seen in Europe. But austerity’s ever-shrill avatars are undaunted by reality. Our Alan Simpsons and Erskine Bowleses keep on shrieking that we must follow Europe’s path or we’re avoiding our “moment of truth.”
Here’s the real truth: Every time these European nations have made austerity cuts it’s made their economies worse — and increased their debt. Meanwhile investors are essentially paying the U.S. Treasury to let them lend us money — money we’re not using to create badly-needed jobs here at home.
Yet all we hear from Washington is chatter about a “Grand Bargain,” when we should be talking about a “Grand Borrowing” — a smart and targeted short-term plan that would jump-start our economy, put millions of people back to work, and cut the debt more effectively in the long run.
Economic Death Trip
Don’t take a lefty’s word for it. Just look at the stock market’s response to austerity’s effects. The market tanked on Europe’s news. Investors know that they can’t prosper in a grim and shrinking economy. The only corporate types who aren’t pessimistic are financial speculators like Romney, the economic undertakers who can make a buck betting against their own country’s growth as easily as they can betting for it.
And speaking of undertakers: Things have gotten so bad in Greece that, as a middle-aged Greek woman notes, “families can no longer afford to even bury their dead. Bodies lie unclaimed at public hospitals so that the local municipality can bury them.” That’s bad news for Greece’s funeral industry — but maybe they can make it up in volume. Malaria has returned to island, thanks to austerity-driven budget cuts which sharply reduced government anti-mosquito spraying, and Greece is struggling with a severe drug shortage brought on by forced reductions to pharmacy spending in its austerity package.
Food prices remain a serious problem, as questions linger about the role of commodities speculators (including banks) are inflating those prices. (European banks have been more responsive to pressure from charitable groups and political interests than their US counterparts — perhaps because they’re not quite as coddled?)
When an economy fails, society starts breaking down. Greece has been wracked by repeated general strikes. There’s a sharp rise in murderous thugs on the Greek streets, as fascist shock troops for the neo-Nazi “Party of the Golden Dawn” begin beating people on the streets of Athens — sometimes while the police look on passively.
Young people suffer especially hard — and that makes it worse for everybody. A research agency of the European Union recently concluded that Europe lost more than $198 billion this year — nearly $4 billion a week in social welfare costs and lost growth — as the result of the “NEET” problem (young people who are not employed, in training, or being educated).
Each year a young person remains idle typically robs him or her of future earnings. How much of our own economic future have we already sacrificed to cuts in education, and to our political inability to put our own unemployment-wracked young people on the path to fruitful careers?
The other day students were protesting Greece’s severe cuts to arts and music education. That proposal resembles Romney’s own education plan, which would restrict student aid to coursework that would give young people employable “technical” skills. That would accelerate our shift from a society that values the arts, and the life of the mind, to one that sees our children as nothing more than future cogs in a global corporate machine.
Persistent Vegetative Banking State
The IMF identified another source for Europe’s problems. “The financial system is still not functioning efficiently,” its report concluded. “In many countries, banks are still weak, and their positions are made worse by low growth. As a result, many borrowers still face tight borrowing conditions.”
We have weak banks, too, although we continue to prop them up relentlessly (and to treat underperforming CEOs like Jamie Dimon as if they were wizards of finance). The regulations we’ve put in place to prevent another financial crisis aren’t nearly as strong as they need to be — but Romney would eliminate them altogether.
Like Europe’s banks, Wall Street isn’t doing much lending to consumers. What should we do? Those “lefties” at the IMF have some good suggestions: do more to relieve household debt, “increasing the participation of government-sponsored enterprises in the principal reduction program, supporting refinancing on a larger scale, and converting foreclosed property into rental property to limit the downward price pressure.”
Here, too, Romney would replace an inadequate response with a highly destructive one.
One of the few flickers of European good news — if you define “good news” as “news that’s not as bad as expected” — was the report that Great Britain’s last quarter, wasn’t quite as recessionary as expected. That was probably due in large part to that country’s hosting of the Olympics and Paralympics, which led to increased government spending.
Get the hint, Europe?
The current Administration’s efforts in these areas has been lackluster at best, probably because it’s tried to compromise with Republicans who have exactly the wrong economic ideas. (Nick Kristof has an excellent rundown of the GOP’s erroneous past economic prescriptions, which would be hilarious if they weren’t so tragic.)
But Romney would take us in exactly the wrong direction. He’d cut government spending and allow the housing market to collapse altogether, without safeguards for beleaguered homeowners. (Even cash-strapped Greece has been looking the other way when its millionaires park their money offshore to evade taxes; sound familiar, Mr. Romney?)
Despite the evidence, Mitt Romney wants to give us the same dose of austerity Europe’s been getting. It’ll have the same result.
Ghost of Economies Future
Those who think “it can’t happen here” when they hear about malaria or fascist racism should review the Romney/Ryan budget. It slashes funds for everything from disaster relief (which could leave survivors of a catastrophe homeless and starving) to public health and local law enforcement.
For thuggery they need look no further than the rise in anti-Muslim violence — and the widespread belief that the president of the United States is a Muslim foreigner (a topic Mr. Romney found appropriate to joke about).
Nationalism and rage have been on the rise as countries like Greece have been forced to accept humiliating economic deals in order to stay afloat, one of which is to make repaying bankers a higher national priority than serving its own citizens. That’s where austerity inevitably leads: the overruling of democratic process by financial elites.
Americans have been remarkably tolerant of the economic hardship imposed on them so far. But if austerity continues to be pushed on them, that may not last forever.
It takes a blind eye for history and a deaf ear for economics not to understand that Europe’s agonies — riots, social breakdowns, even food shortages — could soon become our own. And let’s not forget: as bad as things are in Europe, they can always get worse.
Like the old movie poster said: Be afraid. Be very afraid.
(UPDATE: I’ve amended the description of austerity’s negative impact on debt burdens from the original post, which failed to explain the impact of contracting economies on the debt-to- GDP ratio. In the struggle to strike the right balance between accuracy and readability, I swung too far to the “readability” side of the scale and neglected an important aspect of the problem. My apologies, and we’ll keep working on that balance!)