In a recent column I responded to a conservative scholar’s (Victor David Hanson) claim that U.S. “employment rates for college graduates are dismal” by showing that the employment rate for college graduates seeking employment was 96.8% – and rising.
Employment rates for recent college graduates are far worse than “dismal” in the periphery of Europe because the EU troika (the ECB, the EU Commission, and the IMF) have inflicted austerity on these nations. This produced a gratuitous second Great Recession in the Eurozone as a whole, but it also caused Great Depression levels of unemployment in Spain, Greece, and Italy. Those three nations have over 100 million in total population – roughly one-third of the eurozone’s total population. College graduates in these nations have unemployment rates ten times greater than in the U.S. (Hanson is a big fan of austerity, so he managed to get everything – the facts and the cause – reversed in his fable.)
Prime Minister Renzi: There are Superb Alternatives to Austerity
Italian Prime Minister Matteo Renzi has gradually been departing from the malpractice of “bleeding the patient (the economy)” through austerity to make it healthy. He has been making five key points about why it makes no sense to inflict austerity on an economy in recession. First, even the IMF has been admitting that stimulus is not only effective in spurring a strong recovery from recessions – it is far more effective than economists predicted.
Second, the U.S. economy recovered far more quickly than the eurozone due to stimulus. The amount of stimulus that the U.S. used was far below what economists recommended as desirable, so we could have done even better.
Third, the pace of the U.S. recovery, relative to projections, fell substantially as the U.S. moved away from stimulus towards austerity as President Obama increasingly ignored his economic advisors and listened instead to Treasury Secretary Geithner. Geithner has no economic expertise. Unsurprisingly, his ignorance is matched by the intensity of his disdain for stimulus. The U.S., budget deficit is already under the three percent EU budget deficit rule, which is too low and acts as like a parking brake reducing our growth rate.
Fourth, when Germany ran larger deficits its economy grew faster, allowing it to reduce its very high unemployment levels without producing any harmful inflation. Germany violated the budgetary rules it insisted on inflicting on the EU. The result was another success for stimulus.
Fifth, while nations like Germany that are huge net exporters can experience modest positive growth even with austerity, we cannot all be net exporters. Germany’s success in exporting makes it far harder for the periphery to mimic that net export strategy. The only means by which the periphery can realistically hope to become huge net exporters would be to slash worker’s wages, driving a competitive race to the bottom..
The Bloomberg title of the article about Renzi is misleading: “Renzi Urges Germany to Remember Budget-Busting Path to Growth.” “Budget-busting” is designed to evoke images of a wild and crazy Germany running a massive deficit. Germany ran moderate deficits in excess of the deficit limits it insisted on imposing on the EU. The concept of a nation “busting” a budget in response to a recession is a non sequitur. Sovereign nations are not simply big households. They should be running deficits in many years, indeed, most years.
The Non-Reasoning Response to Renzi by the TINAnauts
Renzi’s arguments are based on the facts, so the response of the TINAnauts to his points consists of a chorus chanting “TINA, TINA, TINA.”
“‘Austerity and growth are two sides of the same coin,”said Guy Verhofstadt, a Belgian who leads the European Parliament’s liberal bloc. ‘You need austerity.’
Germany’s Manfred Weber was even more direct. Addressing Renzi in the parliament today, he reiterated his view that Italy and France don’t want to respect the budget rules that were forced on smaller nations like Greece and Portugal. Weber heads the European legislature’s largest voting bloc, the European People’s Party, allied with German Chancellor Angela Merkel.”
Yes, austerity and growth are opposites, as “heads” and “tails” are the opposite sides of a coin. If you pick austerity in response to the Great Recession you produce a gratuitous second Great Recession throughout the eurozone and a second Great Depression in Spain, Greece, and Italy. When the proponents of austerity are reduced to metaphors that undercut their arguments and the ipse dixit “You need austerity” you know how bankrupt the policy is. The Bloomberg article quotes the leaders of the two leading hard-right parties. (The EU “liberal” party uses that term in the common EU manner, which is the opposite of how the term is typically used in the U.S.)
Why does Italy “need austerity?” The best the proponents of austerity can do is to invoke the fraternity hazing rule – yes it’s stupid and self-destructive, but the frat brothers did it to someone else last year so they “need” to inflict it this year on you. Because the troika inflicted self-destructive misery on Greece and Portugal it must inflict misery on Italy. There is no pretense to logic in this, but the “fairness” claim (the troika is supposedly equally hostile to the working people of every member of the eurozone) is also exposed as a lie by Renzi’s invocation of the history of Germany successfully using stimulus in excess of the EU’s nonsensical budgetary rules to speed its recovery without producing any inflationary problems.