"If you just cut -- if all you're thinking about is just cutting spending -- why as you cut spending you'll slow down the economy, so you have to at the same time create pro-growth tax policies." -- Mitt Romney last week during a town hall meeting in Michigan
Austerity measures and economic growth are oxymoronic. Romney and the Democrats get it, but the moribund Republican party clings to austerity like a nihilist clinging to a sign saying "the world ends tomorrow." Similarly, the International Monetary Fund (IMF) has been imposing austerity on debt-burdened countries for years as a condition for loans, with often violent results. Recently, protesters torched centuries-old buildings in Greece to protest cutbacks, which included the proposed slashing of 100,000 governmental jobs. Given this backdrop, will the Republican prescription for the economy work?
Three of the four Republican candidates for president, including Romney, supported Rep. Paul Ryan's (R-WI) draconian budget proposal that was passed by the GOP-led House in April of last year. Rep. Ron Paul said the plan did not go far enough, while former Speaker Newt Gingrich soberly called it "radical right-wing social engineering," later rapidly backtracking after receiving considerable criticism from the right. "The plan would shrink federal spending to about 20 percent of Gross Domestic Product (GDP) by 2015 and to 14.75 percent of GDP by 2050 -- the lowest level since 1951, a time when Medicare and Medicaid did not exist."
Republicans take it as a matter of faith that the recession has been prolonged by activist government policies, but recent austerity measures taken across the pond in Europe have backfired. Austerity has led to slower growth and greater debt burdens in European countries, a precursor of what will happen here under Republican proposals.
For example, Portugal has met every demand from the IMF cutting wages and pensions, slashing public spending and raising taxes and its recession has only deepened. In the third quarter of 2011, government debt equaled 110 percent of GDP. That was up from 91 percent a year earlier.
In Ireland, middle-class wages have been reduced 15 percent and the sales tax boosted to 23 percent (the highest in the European Union). But its debt amounted to 105 percent of economic output in the third quarter of last year; a year earlier, it was 88 percent.
In Britain, Prime Minister David Cameron staked his political future on his austerity plan. Government debt ratios reached 80 percent in third-quarter 2011, up from 74 percent a year earlier.
Well, so much for Cameron's political future! Rather than falling, debt burdens are rising fastest in European countries that have enacted the most draconian austerity programs, according to the Associated Press. The sole exception to the failure of austerity in Europe may be Latvia.
Former UK Prime Minister Gordon Brown said: "Against this background, the obsession of Europe's leaders with imposing a swift and deep austerity seems hopelessly superficial and short-sighted."
Therefore, voting Republican means we share the plight of Portugal or Ireland. Slower growth and crushing debt loads are incompatible. The U.S. made the same mistake in 1937 when FDR tried to eliminate deficits and balance the budget too soon into a fragile recovery that saw unemployment reduced by half since 1932. Consequently, GDP fell and unemployment increased leading to a return to severe recession. The country was finally dragged kicking and screaming out of the Great Depression by the massive economic stimulus provided by WWII.
To pay for the war, America's debt to GDP ratio rose to over 120%. However, far from seeking the shelter of austerity, the country confidently rebuilt the war ravaged cities of Europe and Japan, passed the G.I. Bill allowing a a generation of returning soldiers to attend college, and constructed the interstate highway system. The economy grew and the debt returned again to manageable levels as a percentage of GDP.
Perhaps Republicans just see the safety net as vulnerable and are going in for the kill. After all, GOP Rep. Eric Cantor said "Listen, we're going to have to come to grips with the fact that these programs cannot exist if we want America to be what we want America to be." Scary thought!