By William K. Black
(Cross posted from Benzinga.com)
Spain’s conservative government, eager to change the media’s emphasis on its repudiation in recent EU elections, has launched a media campaign stressing its adoption of an aggressive “stimulus” program. Spain’s conservatives – and their predecessors the so-called socialists – are infamous for embracing the troika’s demands for austerity. Why have the Spanish conservatives finally admitted that austerity is a disaster and stimulus is essential? They have not done so. Instead, they have rebranded “austerity” as “stimulus.”
“MADRID—Spanish Prime Minister Mariano Rajoy is planning to launch a €6.3 billion ($8.59 billion) economic stimulus package, a move to keep sky-high unemployment and the risk of deflation from derailing the country’s recovery.
Mr. Rajoy told 200 business leaders at a conference in Sitges, near Barcelona….”
No one should be surprised that this supposed “economic” policy is actually all about domestic Spanish politics, as was the decision to make the presentation in restive Barcelona.
Spain is the eurozone’s fourth largest economy, so an $8.6 billion “stimulus,” even if it were real, would be of trivial help. But it isn’t real, though a reader would never learn that from the WSJ or the BBC. Let’s start with the essential background, which both articles omit. The troika’s (the IMF, EU, and ECB) austerity demands gratuitously forced one-third of the EU’s total population (living in Spain, Italy, and Greece) into a Second Great Depression. Their unemployment levels exceed the average rates for the original Great Depression. The EU’s chief apologist for austerity, Olli Rehn, recently predicted that if there were no further economic shocks it would still take Spain ten years to emerge from the “crisis” phase.
The depravity of the troika’s economic policies – the financial equivalent of “bleeding” a patient to cure him – is radicalizing many Europeans.
The WSJ article does not describe the purported stimulus program, which is a rather remarkable omission from a story purportedly about a purported stimulus program. The article exhibits a remarkable amount of logical inconsistency. It tells the reader that the IMF describes “demand” in Spain as “fragile.” Recessions and Great Depressions are caused by grossly inadequate demand. Austerity exacerbates already grossly inadequate demand. Spanish demand is not “fragile” – it is grossly inadequate. If Prime Minister Rajoy is finally admitting that Spain’s problem is inadequate demand then he has to abandon his self-destructive austerity program and switch to a real stimulus program.
Is Rajoy proposing to deliberately run a substantial budget deficit to restore the inadequate demand? That would be the obvious question for any reporter, but the WSJ never addresses the issue. The only aspect of the plan that the WSJ describes is for a minor reduction in corporate income tax rates.
“Mr. Rajoy also said he would cut the main corporate tax rate to 25% from 30%.
The main idea, he said, ‘is to lower taxes.’”
No one believes that the minor reduction in corporate income taxes will significantly boost Spanish growth. Rajoy, understandably, wants to claim that the economic disaster he and his predecessor have inflicted on Spain is really a success story. The WSJ is happy to spread his propaganda.
“Spain, the euro zone’s No. 4 economy, has had one of the strongest recoveries of any country in the monetary area, after a recession stretching from 2008 to last year. In the first three months of 2014, the Spanish economy grew 0.4%—double the quarter-to-quarter growth rate posted at the end of last year.”
Spain’s “recovery” is pathetic. At this growth rate, Spain will continue to have Great Depression levels of unemployment for the remainder of this decade. If Spain has “one of the strongest recoveries” in the eurozone then the reader needs to know that the eurozone’s “recovery” is worse than pathetic.
Indeed, in the next sentence of the article the WSJ unintentionally and unknowingly revealed Rajoy’s incoherence.
“‘We are looking to increase disposable income for families, invigorate consumption, improve economic competitiveness, boost savings, and especially, contribute to the increase in employment,’ Mr. Rajoy said.”
Increasing “disposable income for families” in order to “invigorate consumption” is precisely what Rajoy should be doing. Reducing the corporate income tax will not do so. Austerity and Rajoy’s fierce efforts to reduce Spanish wages reduce “disposable income for families” and cripple “consumption.” Worse, Rajoy says that his goal is to increase household “savings.” In the midst of trying to recover from the Second Great Depression the last thing Rajoy should want to do is “increase savings.” The WSJ, the nation’s top financial paper, is unable or unwilling to point out Rajoy’s logical incoherence and financial ignorance.
The BBC story at least describes the purported stimulus program.
“‘Next Friday, the government will present a package of measures to increase competitiveness and productivity,’ Mr Rajoy said.
‘The plan will include investments totalling 6.3bn euros, of which 2.67bn will come from the private sector and 3.63bn from the public sector.’
Reports suggest the package will include credits to small and medium-sized firms, and investments aimed at research and development, transport and energy saving.”
As the BBC report reveals, Rajoy has no stimulus plan – he has a magic “productivity” plan. Rajoy plans to continue austerity. He is still trying to bleed the Spanish economy through budget surpluses. Like President Obama, Rajoy is purveying the myth that it does not matter that his overall budget is austere because jobs training programs are magic. The magic programs will suddenly supercharge productivity and lead to large increases in exports and employment. The “magic” claims are not taken seriously by economists of any school. It may be perfectly sensible to fund R&D programs, but no one seriously believes it will have any meaningful near term effect on demand.
The reality of Rajoy’s faux stimulus program is the same old conservative game plan – tax breaks and subsidies for corporations. Recall that Rajoy sold his plan on the claim that its paramount goal was to “to increase disposable income for families [and] invigorate consumption….” The plan described by Rajoy will do nothing to increase disposable income for families and invigorate their consumption.” It would also do nothing to fulfill his stated goal of increasing their savings – but that is good news because increasing household savings would send Spain’s economy reeling backwards. Rajoy will argue that his plan meets his third stated goal (“improve economic competitiveness”), but if he believes that giving subsidies to domestic businesses “improve[s] economic competitiveness” then (1) Rajoy is no conservative, and (2) somebody better keep the WTO from learning about Rajoy’s plan because it violates the rules.
Rajoy’s “stimulus” plan is an economic joke. It is all about domestic Spanish politics and the surge of Spanish support for Rajoy’s vigorous new opponents – Podemos (“We Can”). The eagerness of the WSJ and the BBC to aid Rajoy’s attempt to rebrand his disastrous austerity as “stimulus” is the most revealing aspect of the episode.