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Austerity vs. Growth Scam

By: loganyung (Diary)  |  May 20th, 2012 at 02:36 PM  | 

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The G-8 leaders have framed the discussion of reviving the world economy in terms of making the choice between austerity and growth. Most of the leaders are banking on their electorate choosing to support growth, but, what is cleverly hidden is the fact that what the leaders are really proposing is growth of government, not economic growth. This type of growth will result in an acceleration of debt, more government control, and less private sector expansion. Europe may be trapped in the position where these are their only options, but, this is no solution for America.

The Obama Administration and Democrats are following Europe’s lead, and are constructing a new straw man to try to influence the upcoming debt ceiling negotiations. You saw this being trialled on Fox News Sunday with Democrat Strategist Joe Trippi, who warned against the austerity approach by describing the death spiral of less spending resulting in lower government revenue, causing even less spending, causing even lower government revenue, resulting in economic collapse. With the media’s support, the Obama Administration position will surely dominate the discussion. Already, you’re seeing headlines like this: “Obama sees emerging consensus on global economic growth”. But, this false choice could not be more contrary to American ideals.

Recessions cannot be avoided by any economic system, but in the free market, recessions have the side effect of cleaning out inefficiencies in the economy. The free market approach has caused America to be able to rebound sharply from recessions, but this was not the approach taken by the Obama Administration in the current recession. The approach to the current recession was to bail out failing companies, which has left them with structural inefficiencies. Also, government spending dramatically increased, giving the federal government much more control of the economy. The new burdens placed on companies and consumers are causing both groups to take a defensive posture. The current approach, as judged by the tepid GDP expansion, has failed, but the Obama Administration is gearing up to push for more of the same.

America needs to lead the world out of this global recession by unleashing the power of the individual. This will only be accomplished by reducing government control and by encouraging people to take more risks in starting and expanding businesses. The Obama Administration has made it clear that they won’t take this approach, and the Romney campaign has indicated that they will. America now has a choice between the Austerity vs. Growth Scam, and America getting back to being America. The choice couldn’t be any more clear.

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  • trimulchio

    free up labor markets, as in Swedan, or to have tighter savings and commercial banking regulations as in Candada? How about lower taxes (and, hence,) reduced spending? All these add to growth as a Keynesian approach doesn’t.

  • http://travismonitor.blogspot.com Freedoms Truth

    These terms ASSUME KEYNESIANISM AS THE ONLY PATH TO GROWTH.

    They assume that tax increases is the only path to fiscal balance.

    We need to invert both concepts.

    Growth comes from Reaganite supply side policies:

  • http://travismonitor.blogspot.com Freedoms Truth

    Let me finish the thought. How does a debt burdened country dig out from the debt and grow at the same time? Is it even possible?

    1) Growth comes from Reaganite supply side policies:
    - lower tax rates, deregulation, pro-business policies, stable money

    2) Managing the DEBT comes from:
    - fiscal balance by RESTRAINING SPENDING to reduce fiscal deficits and growing the economy (see #1)

    So what the IMF ends up proposing – high taxes – is precisely the wrong prescription. Passing more and more taxes to may down an unaffordable welfare state kills the growth needed to dig out from under the burden. This is the ‘austerity’ spiral. BUT the ‘austerity’ label is given to the spending cut reductions that do NOT have negative impact.

    Now there is a third component to #1 that has to do with the basic competitiveness of the economy in question. Many countries choose to devalue currencies because the labor system is too rigid to change otherwise. This is a very painful process that impoverishes the savers in that country. What is a better way? Liberalize the labor system. It is precisely the choice Greece faces. Either fix the system and get competitive in the Euro, or get out of the Euro.

  • trimulchio

    However, reducing government spending and taxation and reducing both regulation and the number of myrimidons wandering about unproductively enforcing such regulations and inhibiting the productive would add to growth. (Hat tip to the great Richard Epstein for that last point.)

  • JSobieski

    Austerity is just another word for slightly reducing the spending increases. Even Greece hasn’t cut anything and their national debt is in danger of becoming a MULTIPLE of GDP.

    So while I agree with what you say, the debate itself is a false one. Even the most “draconian” of austerity plans is mild in the context of how the private sector is forced to conduct itself.

  • trimulchio

    to sell off assets. There is a lot of federal land that could be sold to pay down debt.

  • trimulchio

    cannot be avoided by any economic system, but in the free market, recessions have the side effect of cleaning out inefficiencies in the economy.The free market approach has caused America to be able to rebound sharply from recessions, but this was not the approach taken by the Obama Administration in the current recession. ”

    The Obama approach was also used in the Nixon, Ford and Carter Administration and by Japan for the last 20 or more years. It clearly does not work. There is no solution to a debt crisis in more debt. That was the “Re-fi” Economy of the mid-2000s and that failed as well on the consumer side.

    A few things need to be done:

    —down-size the Federal government to its Article I, Section 8 duties, with a VERY strict construction of teh “necessary and proper” clause;

    —cut tax rates, reduce double and triple taxation by eliminating corporate and capital gains taxes; and

    —sell off land and other federal assets.