The Federal Reserve Open Market Committee said it in the press release from its latest committee meeting, "Household spending and business fixed investment advanced, and the housing sector has strengthened further, but fiscal policy is restraining economic growth."
Austerinomics, or the policy of starving the beast of government by cutting both its revenues and spending, doesn't work at a time when 7.5 percent of those looking for work cannot find jobs and some 4.4 million have been unemployed for more than 6 months. In fact, austerinomics doesn't work anytime, as it is really starving most Americans of their wealth by limiting job growth, as well as necessary public services and safeguards.
We know the growth restraints come from across the board sequestration spending cuts on top of the $1.6 trillion in spending cuts enacted in 2011. The results, says the Congressional Budget Office are the loss of up to 750,000 jobs and up to 1.5 percent in GDP growth in 2013.
The real beef of Keynesian economists such as Paul Krugman, Joseph Stiglitz and a host of other Nobelists is that the advocates of austerity in both U.S. and Europe won't acknowledge the evidence. Austerinomics hurts economic growth. The evidence is really overwhelming, both in Europe that is back in recession and the weak U.S. recovery. Cutting government spending and other stimulus measures during recessions, and consequent recoveries makes no economic sense, because it reduces both the demand for more goods and services and the tax revenues to pay for them.
Austerinomics isn't based on any economic theory (nor is Laffernomics, the theories of Arthur Laffer who predicted that lower tax rates would increase growth). It hasn't happened, as GDP growth has been slowing since the 1970s rather than speeding up as tax rates have been slashed.
Graph: Trading Economics
For what drives growth is both public and private spending, not just spending of the wealthiest few. For instance government services make up 13 percent of GDP growth historically, about the same as retail and wholesale trade. It should be self evident that consumers spend less and investors invest less when unemployment is high and incomes are low. Even GW Bush understood this, which is why he refused to cut government spending after his first recession and 9/11 attacks.
Unfortunately, most of that spending was to finance 2 wars and tax cuts for the wealthiest individuals. But it did bring back full employment, until the housing bubble burst.
Then what is the real goal of the advocates of austerinomics? It is the continued transfer of wealth to the wealthiest. Representative Paul Ryan's budget proposals provide the blueprint, and Bush's Brain Senior Advisor Karl Rove provided the rationale for re-creating the cartels and monopolies of President William McKinley's time--1897-1901. Rove believed Republican principles and power would reign supreme for generations, if Republicans and their supporters accumulated enough wealth.
But enriching the few at the expense of the many has never been accepted by Americans. Vice President Teddy Roosevelt initiated the progressive era upon McKinley's assassination, battling the monopolies and cartels of that era. The result was what he called the "New Nationalism", a government that functioned for all the people, in his famous 1910 Osawatomie, Kansas speech.
"The new Nationalism puts the National need before sectional or personal advantage. It is impatient of the utter confusion that results from local legislatures attempting to treat National issues as local issues. It is still more impatient of the impotence which springs from over-division of governmental powers, the impotence which makes it possible for local selfishness or for legal cunning, hired by wealthy special interests, to bring National activities to a deadlock. This new Nationalism regards the executive power as the steward of public welfare. It demands of the judiciary that it shall be interested primarily in human welfare rather than in property, just as it demands that the representative body shall represent all the people rather than any one class or section of the people."
Once again, Karl Rove/GW Bush attempted to turn the clock back to the beginning of the 19th century, and we are now living with the consequences--wars and budget deficits without end. It's hard to see what form a new nationalism will take, until and unless a new Teddy Roosevelt comes along.
Harlan Green © 2013