Not only is the United States slouching toward a double-dip, but so is Europe. New data out Tuesday show even Europe's strongest core economies -- Germany, France, and the Netherlands -- slowing to a crawl.
We're on the cusp of a global recession.
Policymakers be warned: Austerity is the wrong medicine.
We all know about the weaknesses in Europe's "periphery" -- Greece, Ireland, Spain, Portugal, and Italy. But the drop in Europe's core is dizzying.
Germany grew at an annualized rate of just half a percent last quarter, down from 5.5 percent in the first quarter of the year. France didn't grow at all.
What's going on in Europe's core? Partly it's a loss of confidence due to debt crises in the periphery. But that's hardly all.
Europe depends on exports -- especially to Asia, India, Latin America, and the United States. But exports to China and other emerging markets have been dropping. China, worried about inflation, has pulled in the reins on its sizzling economy. Brazil has been pulling back as well.
And as the United States economy sputters, exports to America have been slowing.
But chalk up a big part of Europe's slowdown to the politics and economics of austerity. Europe -- including Britain - have turned John Maynard Keynes on his head. They've been cutting public spending just when they should be spending more to counteract slowing private spending.
The United States has been moving in the same bizarre direction. Cutbacks by state and local governments have all but negated the federal government's original stimulus, and no one in Washington is talking seriously about a second. The pitiful showdown over increasing the debt limit has produced the opposite: a Rube-Goldberg-like process for capping spending rather than increasing it, and a public that's being sold the Republican lie that less government spending means more jobs.
Yes, governments on both sides of the Atlantic are deeply in debt. But policy makers on both sides seem to have forgotten that economic growth is the most important tonic.
Public debt has meaning only in relation to a nation's GDP. When more people are working, more companies are profiting, and economies are expanding, revenues pour into national treasuries.
When economies stop growing or contract, the opposite occurs. Economies can fall into vicious cycles of slower growth, lower tax revenues, spending cuts, and even slower growth.
That's what we're seeing now.
What's worse, nations are so intertwined that when every major economy is slowing the cumulative effect is larger.
With anemic growth in America and Europe, the Japanese economy comatose, and emerging markets (including China) pulling in their reins, the vicious cycle could become worldwide. If global demand for goods and services continues to fall behind the potential supply we'll see unemployment rise further and growth slow even more -- especially in Europe and the U.S.
Central banks may try to reverse this course. Ben Bernanke and company at the Fed have committed themselves to near-zero interest rates for the next two years (not exactly a rousing endorsement of America's economic prospects in the near term). Given the sharp slowdown in Germany, the European Central Bank might now feel some pressure to lower interest rates there -- or at least delay the next increase.
But when growth is slowing so dramatically and unemployment is already high, monetary policy can't possibly do it alone.
Without an expansionary fiscal policy, low interest rates have little effect. Companies won't borrow in order to expand and hire more workers unless they have reasonable certainty they'll have customers for what they produce. And consumers won't borrow money to spend on goods and services unless they're reasonably confident they'll have jobs.
Fiscal austerity is the wrong medicine at the wrong time.
Robert Reich is the author of Aftershock: The Next Economy and America's Future, now in bookstores. This post originally appeared at RobertReich.org.
Follow Robert Reich on Twitter: www.twitter.com/RBReich
If my neighbor could get rich by giving away his money to less well off people, why would he not do it? (Heck we all would. If Keynes principles made that much sense we could all spend our way to prosperity. ) Tell you why he wouldn't do it, because it runs counter to COMMON SENSE, a trait apparently not in abundance among people like Mr. Reisch. I am somewhat educated and really wish he would give me a detailed explanation, in 250 words or less of how Keynesian economics works. I am smart enough to know that these types of "Creditable" academics are not near as intelligent as the man on the street. Mr. Riesch paid good money for a prestigious education and this is what he preaches. Glad I'm not a PhD.
Unfortunately politicians have tried to fence in, prune, and even clear cut areas to better serve their ends. Rather than allow rules to evolve through the courts and competition they have created ever more complex interventions. Rather than allow growth to happen at a natural pace they apply ever larger amounts of artificial fertilizer.
The fertilizer caused housing, finance and health care to grow out of control, smothering other necessary plants. As always there is eventually a dieback as the fertilizer is used up.
Instead of allowing the forest to grow back into balance politicians and their Keynesian advisors are increasing the fertilizer applications to much higher levels, trying to preserve the weeds.
Wow.
The 'economy' is a human construct causing untold human misery and environmental destruction on a global scale. It is the ultimate source of global conflict and war. It is not an 'ecosystem.' It is not 'wild,' or least of all 'beautiful.' On the contrary, its an ugly, competitive system that brings the worst out in people and nation-state governments alike.
More kool-aid?
Go ahead and try to live on $3/day.
The economy is created by people just as forest is created by the plants & animals that live there. Just like a forest no one in the economy controls or organizes it. It evolves based on resources available and the actions and desires of it's inhabitants. It is the best system to date to allocate scarce resources to meet people's needs. Wwar and violence has dropped, poverty has been reduced and the environment is improving.
Take off your dark glasses and read some history. Innovation and rewarding innovators has allowed us to escape the Mathusian trap.
We are looking at nearly the same thing that happened 100 yrs ago. The GD had the same people complaining about the same things. It will lead us to the same place.
Until people stop repeating the false meme that the govt budget should be run like a household budget we will continue on this trajectory.
The greatest growth in US history was the highest taxed; interstates/highways/dams/infrastructure, etc.
- Deficits spiked under each republican president and went down under democratic ones.
From US govt spending.com
http://tinyurl.com/42n2pcl
- Taxes're lower w/Obama. We should be in a boom according to trickle down.
http://tinyurl.com/3sbnwss
- US/DOL Unemployment spiked higher in Reagan's first two years. It was over 10% for almost a year. He wasn't dealing w/a massive market crash.
http://data.bls.gov/cgi-bin/srgate
Enter: LNS14000000
Select 1960 for start and click retrieve. Show graph if you like.
Reagan raised taxes on the rich!
http://tinyurl.com/2ew3hml
- House JEC report, 1996; Republican majority:
http://tinyurl.com/4ruof
"The share of the income tax burden borne by the top 10 percent of taxpayers increased from 48.0 percent in 1981 to 57.2 percent in 1988. Meanwhile, the share of income taxes paid by the bottom 50 percent of taxpayers dropped from 7.5 percent in 1981 to 5.7 percent in 1988.
A middle class of taxpayers can be defined as those between the 50th...95th percentile (those earning between $18,367 and $72,735 in 1988). Between 1981..1988, the income tax burden of the middle class declined from 57.5 percent in 1981 to 48.7 percent in 1988. This 8.8 percentage point decline in middle class tax burden is entirely accounted for by the increase borne by the top one percent."
The big hypocrisy of the right wing and their small government claim is that they all rely on Federal funding for projects in their home districts, and brag about "bringing home the bacon" when they run for re-election. Rick Perry's "jobs miracle" in Texas is largely funded by stimulus money he took after railing against it, and that's another huge area of Republican hypocrisy.
It's about time Obama used the bully pulpit to not only call for a big jobs plan, but to tell Republicans to put their mouths where their money is, and decide whether it's more important to help the people they represent or to try and defeat President Obama in the next election. If every Republican in Congress votes in favor of creating jobs for their own constituents, we might actually drag this country kicking and screaming into a real recovery.
http://www.window.state.tx.us/recovery/transparency/tracking.php
The US economy remains the largest in the world, while the aggregate of the Eurozone country economies is second largest. If these economies falter any further, we are almost certain to be on a path toward global recession.
We need bold leadership on both sides of the Atlantic to move the global economy toward growh and away from recession --- and we aren't getting any kind of leadership at the moment.
For more commentary on the intersection of financial and political decision-making, see my blog @ http://theviewfromthemiddleoftheroad.blogspot.com/.
If everyone wants a globalized economy then we need to have a single Global Currency.
You want to see the super rich cringe, say "Global Currency". Fair to the people and makes it harder for those greedy Multinational Corporations from manipulating governments, which lets face it, they're doing a pretty devastating job of. The super rich have been left out of control and now look at us. We fight among ourselves for scraps while they jet off to utopia.
Put a fail safe on the Global Currency. If it fails a majority vote can reverse it and everyone can have back their crappy currency.
The reason this will work is that it's right. The fact is we are all tied together; more tangibly now than ever. There is no me and them in reality there is only us. We are all on the same boat, it's called Earth.
Too many Americans are under the naive impression that our government should be run like a household budget is run. Most of the MSM, and most of our elected officials, do nothing to disavow them of that notion.
Someone needs to tell Americans that when we "cut, cut, cut", we're cutting jobs too, and frankly, I don't think they'll believe anyone who holds elected office.
I'm afraid that America's best days are behind her.
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So, our dithering empty suit stands by wringing his hands, talking about stimulating the US economy with funds the Republicretin-controlled House won't give him, and the Super Congress becomes politically paralyzed this fall, and 1.5 trillion is taken out the U.S. economy. This isn't just a world depression, it's a world disaster.
Democrats need to find Obama's replacement. Why not Professor Reich?
Viagra for the Economy must be delightful !
So, who or what will lend us Westerners the Stimulus !
If you have an Erection lasting longer than 4 hours call your Bankers !
But at what price? History has shown all too clearly that people who have nothing to left to lose will overthrow their wealthy oppressors.
Let's look at things conceptually: GNP is essentially measured by good/services purchased in an economy. Recessions/Depressions happen when spending slows and instead of spending increasing, it actually decreases - massively in the case of a depression. This results in massive layoffs of people - which results in even less spending.
FRD's programs like the WPA & CCC put people 'back' to work and gave them jobs and infused money into the economy. He also inititated many infrastructure projects that created demand for materials and more labor. All of these civil program help the US economy but the depression didn't actually end until WWII when the more government spending on defense equipment caused unused factories and unemployed people to dedicated to military production.