The U.S. economy is growing slowly and Europe's hardly at all. The stock market lurch last week is a belated acknowledgement that our two economies share a common affliction, and Europe suffers more seriously. The affliction is austerity.
And yet the main remedy being promoted by the U.S. government and its European allies is a trade and investment deal known as T-TIP, which stands for the Trans-Atlantic Trade and Investment Partnership. According to the deal's sponsors, T-TIP would help stimulate recovery by removing barriers to trade and promoting regulatory convergence and hence investment.
The proposed deal is not popular in the U.S. Congress, which has to approve negotiating authority. The administration, say well-placed sources, hopes to cram through the necessary approval during the lame duck session of Congress after the November 4 election. That still will not assure approval, because the deal is also increasingly unpopular in Europe.
There are several big things wrong with T-TIP.
First, it is a distraction from the true causes of sluggish economic performance. Trade barriers are not a pressing problem because most trade between the U.S. and Europe is already quite free. Not even T-TIP's supporters contend it will have more than a trivial effect on growth.
The cause of slow growth is the aftermath of a financial collapse, compounded by austerity policies. Those policies are not quite as bad in the U.S. as in Europe, because we at least have a central bank committed to very low interest rates for as long as it takes for the economy to improve. The Federal Reserve has been buying Treasury securities in whatever volume it takes to keep rates from rising.
The European Union, by contrast, has 28 separate governments, of which 17 use the common currency, the Euro. But the European Central Bank (ECB), unlike the Federal Reserve, provides only limited support for the bonds of member governments. The nations in the worst economic shape, like Greece, get little help. Instead, they are victims of austerity demands from the EU and the ECB.
So while the Federal Reserve has refused to let speculation by the bond market choke off a fragile recovery, in Europe the bond market is used as the enforcer of the official austerity polity. Nations that do not cut their budgets in accord with the demands of the EU and the ECB are at the mercy of bond speculators.
These policies are so perverse that you can understand why European officials want to change the subject -- to (almost nonexistent) trade barriers. But it gets worse.
Most of T-TIP is not about trade at all. Its most potent provision is called Investor-State Dispute Resolution. The proposed provision would give corporations and other investors enhanced standing to challenge ordinary forms of economic regulation as trade barriers. It would create special tribunals to circumvent ordinary democratic processes. The T-TIP agenda has been created largely in secret, mainly by corporations.
So T-TIP, in the main, is less about stimulating investment and commerce than it is a backdoor, undemocratic device to undermine a managed form of capitalism -- one freely chosen by a majority of European citizens.
And here is where the financial collapse, austerity economics, and T-TIP come together in a witches' brew. All are expressions of the ideology known as neo-liberalism. That ideology holds that economic regulation is a mistake and that government should get out of the way of the marketplace.
As Europe and the U.S. deregulated finance, opaque and risky forms of financial engineering became pervasive. The financial crash of 2007-08 was the result.
Then as a remedy for the collapse, rather than seriously re-regulating financial markets, governments turned to budgetary austerity -- to "reassure" the same financial engineers who had caused the collapse. Not surprisingly, austerity functioned instead as a drag on our economies.
The third pillar of neo-liberal economics is the idea that salutary forms of economic regulation -- in health, worker rights, financial safeguards, the environment -- are improper barriers to free trade. Just as neo-liberals want to destroy economic regulation country by country, they hope to use trade as a battering ram to undermine measures that haven't yet been dismantled nationally.
The promises for these trade deals invariably outrun the realities. The 1993 North American Free Trade Agreement -- NAFTA -- was going to improve job opportunities and economic growth in Mexico, increase export opportunities for the U.S., and slow the pace of Mexican immigration. Instead, Mexico sank deeper into economic distress and political collapse, stimulating more desperation migration. NAFTA was also used to undermine economic regulation in all three of its member countries, the U.S., Canada, and Mexico.
The truth is that the U.S., Europe, and for that matter Mexico, all grew faster back in an era when all were more heavily regulated economies. Trade barriers were higher back then, but it didn't matter much -- because macro-economic conditions were conducive to good economic performance, and workers got a fairer share of the total economic output.
It's not surprising that corporate elites on both sides of the Atlantic promote deals like T-TIP. What's discouraging is that a Democratic administration in Washington and some Social Democrats in Europe also support T-TIP.
The neo-liberal recipe has been a practical failure. Neither financial deregulation, nor austerity economics, not trade deals like NAFTA have worked. We need nothing so much as a robust opposition party to the neo-liberal consensus.
Robert Kuttner's latest book is Debtors' Prison: The Politics of Austerity Versus Possibility. He is co-editor of The American Prospect and a senior Fellow at Demos, and teaches at Brandeis University's Heller School. Like Robert Kuttner on Facebook. Follow Robert Kuttner on Twitter.