Fox Touts Failed Fiscal Austerity Measures
Fox's Stuart Varney claimed that the result of the French presidential election showed that French voters "want to go backwards" because they are saying "no more austerity." But experts have said that European austerity measures have not improved the economic situation and have warned against similar measures in the United States.
Fox Reacts To French Election By Touting European Fiscal Austerity Measures
Fox's Varney: Election Is "Not Good News" And A "Danger Signal For America" Because Voters Said "No More Of This Austerity." On the May 7 edition of Fox News' Fox & Friends, Fox Business host Stuart Varney claimed that Francois Hollande's victory in the France's presidential election is "not good news" because French voters "think they can grow by more government spending even though they've got no money." From Fox & Friends:
GRETCHEN CARLSON (co-host): It seems that French President Nicolas Sarkozy voted out of office in favor of Francois Hollande, a socialist who wants to raise taxes on corporations and the rich. So what does it mean for the United States' economy? Stuart Varney is here to explain. Good morning.
VARNEY: It's not good news. This is, in fact, a danger signal for America. Look, the Europeans are saying, "Hey, no mas. No more of these cuts, please. No more of this austerity." The Greeks say we're finished with this bailout. We can't handle this bailout, and the French, as you just pointed out, they want to tax the rich. They think that they can grow by more government spending even though they've got no money. Even though they have to borrow a ton more money, they think that borrow it and spend it that the government will get them out of trouble. It's exactly the same in America. That's what we think here.
Later in the segment, Varney warned that "President Obama wants another stimulus program. More government spending to get the economy going. The danger signal is the writing on the wall. We're going the same way as Europe is going." [Fox News, Fox & Friends, 5/7/12]
Varney: Europeans Saying "No More Austerity" Means They "Want To Go Backwards." From the May 7 edition of Fox News' America Live:
VARNEY: The Europeans are saying we want to change direction -- no more austerity, no more of these cuts, no. We want to start spending more government money. We want a new stimulus program. We do not wish to reform entitlement programs, we want to go backwards. That what is now politically popular in Europe. The problem is, that has grave associations of problems for us over here, because it means more debt in Europe, more debt over there means more borrowing over there. That means a longer and probably deeper recession than the one they've already got.
So when you translate that to over here, it means that slow there means probably slowdown here. It means there's less confidence in the global economy, that's not good news for America. And because we are going down the same road, it points into which direction we are going in, and that is a slowdown. [Fox News, America Live, 5/7/12 ]
But Experts Have Said Austerity Measures Are Not Improving The European Economy And Warn Against Similar Measures In The U.S.
Krugman: European Economic Problems Are "A Failure ... Of The Austerity Doctrine." In a January 29 New York Times column titled "The Austerity Debacle," Nobel Prize-winning economist Paul Krugman noted that "Britain is doing worse this time than it did during the Great Depression" and that "Italy is also doing worse than it did in the 1930s." Krugman attributed both of these situations to the "failure, in particular, of the austerity doctrine that has dominated elite policy discussion both in Europe and, to a large extent, in the United States for the past two years." From The New York Times:
Last week the National Institute of Economic and Social Research, a British think tank, released a startling chart comparing the current slump with past recessions and recoveries. It turns out that by one important measure -- changes in real G.D.P. since the recession began -- Britain is doing worse this time than it did during the Great Depression. Four years into the Depression, British G.D.P. had regained its previous peak; four years after the Great Recession began, Britain is nowhere close to regaining its lost ground.
Nor is Britain unique. Italy is also doing worse than it did in the 1930s -- and with Spain clearly headed for a double-dip recession, that makes three of Europe's big five economies members of the worse-than club. Yes, there are some caveats and complications. But this nonetheless represents a stunning failure of policy.
And it's a failure, in particular, of the austerity doctrine that has dominated elite policy discussion both in Europe and, to a large extent, in the United States for the past two years.
The infuriating thing about this tragedy is that it was completely unnecessary. Half a century ago, any economist -- or for that matter any undergraduate who had read Paul Samuelson's textbook "Economics" -- could have told you that austerity in the face of depression was a very bad idea. But policy makers, pundits and, I'm sorry to say, many economists decided, largely for political reasons, to forget what they used to know. And millions of workers are paying the price for their willful amnesia. [The New York Times, 1/29/12 ]
Krugman On French Election: "[T]ime Is Clearly Running Out For The Strategy Of Recovery Through Austerity -- And That's A Good Thing." In a May 6 New York Times column responding to France's presidential election, Krugman wrote:
The French are revolting. The Greeks, too. And it's about time.
Both countries held elections Sunday that were in effect referendums on the current European economic strategy, and in both countries voters turned two thumbs down. It's far from clear how soon the votes will lead to changes in actual policy, but time is clearly running out for the strategy of recovery through austerity -- and that's a good thing.
What's wrong with the prescription of spending cuts as the remedy for Europe's ills? One answer is that the confidence fairy doesn't exist -- that is, claims that slashing government spending would somehow encourage consumers and businesses to spend more have been overwhelmingly refuted by the experience of the past two years. So spending cuts in a depressed economy just make the depression deeper. [The New York Times, 5/6/12 ]
Nobel Economist Stiglitz: "More Austerity" In Europe Is "A Mutual Suicide Pact." A January 17 Telegraph article quoted Nobel Prize-winning economist Joseph Stiglitz calling further austerity measures in Europe a "mutual suicide pact" and pointing out that "even though they see over and over again that austerity leads to collapse of the economy," European politicians are calling for "more austerity." From The Telegraph:
Imposing austerity measures as countries slow towards recession is a fundamentally flawed response, said Mr Stiglitz, who won the Nobel prize in 2001 for his work on how markets work inefficiently.
"The answer, even though they see over and over again that austerity leads to collapse of the economy, the answer over and over [from politicians] is more austerity," said Mr Stiglitz to the Asian Financial Forum, a gathering of over 2,000 finance professionals, businessmen and government officials in Hong Kong.
Mr Stiglitz pointed out that 700,000 public sector jobs had been cut in the United States in the past four years, removing demand from the system as unemployment spikes. The UK is set to lose a similar number by 2017.
Instead, Mr Stiglitz argued the best economic medicine is infrastructure spending, especially on transport and energy projects. He pointed to China as one country that had successfully combatted financial crises with stimulus packages. [The Telegraph, 1/17/12 ]
Christina Romer: "Because Of The Harsh Effect Of Budget Cutting On Growth, Debt-To-G.D.P. Ratios In Europe Have Continued To Rise." In an April 29 New York Times op-ed, Christina Romer, University of California at Berkeley professor and former chairwoman of the White House Council of Economic Advisers, noted that "austerity is uniquely destructive" in the current economic climate. From The New York Times:
It has been two years since moves to austerity started, but the crisis is still with us. Growth in European gross domestic product was negative in the last quarter of 2011. Unemployment in the entire euro zone in February was 10.8 percent; in Spain it was an astounding 23.6 percent. And judging from the renewed turbulence in bond markets, investors don't believe that prosperity is just around the corner.
Fiscal austerity is normally a sensible response to a loss in confidence in a country's solvency, as has occurred in parts of Europe. But the current situation is exceptional. Short-term interest rates are very low, so large rate reductions to offset the negative impact of budget cutting are impossible.
The result is that austerity is uniquely destructive right now. Indeed, because of the harsh effect of budget cutting on growth, debt-to-G.D.P. ratios in Europe have continued to rise. [The New York Times, 4/29/12 ]
Dean Baker: United Kingdom Has "Given Us ... A Beautiful Example Of How Austerity Wrecks An Economy." In a May 1 Al Jazeera op-ed, Dean Baker, co-founder of the Center for Economic and Policy Research, noted that, in the example of the United Kingdom, "It sure looks like the austerity critics won this one." From Al-Jazeera:
We have now had almost two years to evaluate the effects of the UK's austerity policy, which is longer than most governments get to test the results of their policy experiments. After all, President Obama got his head handed to him in the November 2010 elections, which were just 20 months after the passage of his stimulus package.
It sure looks like the austerity critics won this one. While interest rates have remained low in the UK, this has been true of every wealthy country with its own currency, regardless of whether or not it was pursuing an austerity path.
The UK economy does not appear to have done any better in terms of the rest of the picture. If austerity boosted business leaders' animal spirits, it is not showing up in the data. Nearly every component of the private sector has contracted over the past two quarters with construction leading the way, falling at a 0.8 per cent  annual rate in the fourth quarter of 2011 and a 12.0 per cent rate  in the first quarter of this year.
But there are many people in positions of power who want to push austerity for reasons that have nothing to do with economic growth - and they are prepared to lie, cheat, and steal to advance this agenda. For this reason, however much we may sympathise with the people of the UK for their suffering, we should be thankful that they have given us such a beautiful example of how austerity wrecks an economy. [Al Jazeera, 5/1/12 ]
Former WH Economist Jared Bernstein: Austerity "Doesn't Work Here, It Doesn't Work In Europe, It Doesn't Work For State And Local Governments." In a May 4 Rolling Stone blog post, Jared Bernstein, a former White House economist and current Center on Budget and Policy Priorities senior fellow, wrote that austerity "doesn't work here, it doesn't work in Europe, it doesn't work for state and local governments." From Rolling Stone:
This just in: AUSTERITY DOESN'T WORK!
It doesn't work here, it doesn't work in Europe, it doesn't work for state and local governments. I'm tempted to ask how many data points we need to recognize this crucial economic truth, but I'm afraid data points don't have much to do with it. [Rolling Stone, 5/4/12 ]
Financial Times' Chief Economics Commentator Martin Wolf: "Small [Fiscal] Contractions Bring Recessions And Big Contractions Bring Depressions." In an April 27 blog post, Financial Times chief economics commentator Martin Wolf "examine[d] the question" of austerity and found "what I would have expected: the bigger the structural tightening, the larger the fall in GDP." Wolf further pointed out that "small [fiscal] contractions bring recessions and big contractions bring depressions." From the Financial Times:
The result is below. It is what I would have expected: the bigger the structural tightening, the larger the fall in GDP. The estimated fit is fairly good for this sort of calculation. Every percentage point of structural fiscal tightening is estimated to lower GDP by 1.5 per cent of its 2008 level. So the 8 percentage points of structural fiscal tightening in Greece lowered its GDP by 12 per cent.
In all, there is no evidence here that large fiscal contractions bring benefits to confidence and growth that offset the direct effects of the contractions. They bring exactly what one would expect: small contractions bring recessions and big contractions bring depressions.
Finally, since a large number of countries are expected to tighten their fiscal positions substantially in coming years, their economies are likely to contract. How long the political glue will hold in these circumstances is a really interesting question. [Financial Times, 4/27/12 ]
Fareed Zakaria: "European Economies" That Implemented Austerity Measures "Are Finding Themselves In A Downward Spiral." In an April 22 column, CNN host Fareed Zakaria noted that, compared to European economies, "America is booming." Zakaria attributed the difference to "too much austerity" in European economies. From CNN.com:
A new poll in the United States shows that Americans are still deeply frustrated at the slow pace of the economic recovery. That's understandable. Unemployment stays stubbornly high. But I was just in Europe, and they think America is booming.
Consider this: the U.S. economy is on track to grow between 2 and 3 percent this year. In Europe, by contrast, half the eurozone economies are going to actually shrink this year - and not one major European country will grow over 1%.
Consider that data we started with. The U.S. economy, which received monetary and fiscal stimulus, will grow at well over 2% this year. European economies that have followed the path of cutting spending and raising taxes to reduce deficits are finding themselves in a downward spiral: cutting spending means laying off people, which means less demand for good[s] and services, which means the economy shrinks, which - ironically - means lower tax revenues and thus larger budget deficits.
Take a look at Britain. Britain has followed a brave austerity plan, cutting government spending across the board and raising taxes. The result, British growth has stalled; the economy will grow barely 0.8% this year. And while its budget deficit was predicted to be under 13 billion dollars in February, it was in fact 24 billion dollars for that month alone.
After its austerity programs, Spain has hit 20% unemployment - 50% youth unemployment - and now has a much larger budget deficit than projected.
Europe needs structural reforms that will cut spending over the long term - by raising retirement ages and cutting benefits. But it also needs pro-growth reforms that open up its labor market. But most importantly for now it needs to stop imposing austerity in a depressed economy and learn from something from the example across the Atlantic. [CNN, 4/22/12 ]