I just read on-line that Greece has agreed to terms with the European Union in exchange for another financial bailout. The alternative was something people were calling a ‘Grexit,’ which would mean the expulsion of Greece from the EU and from the Eurodollar currency. I’m not entirely convinced that a Grexit would be such a bad thing; certainly not for Greece, which, if it controlled its own currency, could devalue, as the first step in climbing out of the mess it’s in, following the example of Iceland. Instead, they agreed to more ‘reforms,’ including more austerity.
The Deseret News recently published this op-ed piece about Greece. Ordinarily, I wouldn’t link to a newspaper like the DN for an international story, but the piece was such a fine example of conservative thinking about this issue, I thought I would include it. Greece needs ‘austerity measures’ to ‘shore up its floundering economy.’ Greece has a problem with debt. So, goes the argument, what’s needed is a combination of spending cuts and tax hikes to get their fiscal books in balance. Then, and only then, can their economy grow.
Except it won’t. The EU demands are so draconian that I can’t imagine how a Grexit could possibly be worse. I’ll grant that Greece’s creditors would very much like to be paid. But sometimes you make a bad investment and lose your shirt. Default, devalue, rebuild. That’s what the two closest national models, Iceland and Argentina did. Greece has Argentinian levels of debt, in an economy about the size of Miami’s. Here’s the larger point: austerity doesn’t work. It’s never worked. Debt is bad; austerity is worse. When an economy is mired in recession, what it needs is to have more money circulating, not less. The idea that austerity spending will ‘shore up Greece’s floundering economy’ is the equivalent of saying that bleeding patients will help them get over their pneumonia.
Second case study: Wisconsin. Their governor, Scott Walker, just announced his candidacy for President of the United States, touting his economic record. My conservative friends were rapturous. He’d reduced a two billion dollar state deficit! They’re now nearly a billion dollars in surplus! What a dynamo!
In fact, Wisconsin’s economic record is not doing at all well under Walker. Job creation lags well behind the national average, and well behind his neighboring states. Their deficit was reduced due to increased tax receipts, entirely dependent on the national economic recovery. The Wisconsin Economic Development Corporation, a private/public partnership that Walker counts as one of his administration’s finest creations, has had a dismal record, and is hemorrhaging staff. Wisconsin had a 1.5% growth in private sector jobs in 2014, lagging well behind the national average. But that’s also the state’s best year since Walker became governor.
The non-partisan publication The Hill published a scathing review of Walker’s performance, especially in comparison to Minnesota’s Mark Dayton’s performance. Essentially, Dayton pursued a number of policies–an increase in the minimum wage, expanding Medicaid, a tax hike for the wealthy–that had the effect of putting more money in the hands of poor people and the middle class. Walker, on the other hand, cut all spending intended for poor people, refused to increase the minimum wage, and tried to destroy public sector unions. The results couldn’t be clearer; Wisconsin continues to struggle; Minnesota is thriving.
That’s the bottom line. Austerity doesn’t work. Wealth doesn’t trickle down. The way to revive an economy is to put more money in the hands of people who will spend it–increasing demand–and not to put more money in the hands of people who will invest it. Greece is on the wrong track. So is Wisconsin. Minnesota, on the other hand, is doing just fine. Scott Walker is running for President. Let’s not let him win.