Fox Garbles Economics To Claim European Austerity Proves Need For GOP Policies

While reporting on budget negotiations, Fox News' Mike Emanuel suggested that Europe's experience with economic austerity measures supports Republicans' calls for more spending cuts and fewer tax increases. But economists agree that cutting government spending hurts weak economies, and a recent study found that moderate tax increases would have almost no effect on economic growth.

Fox Claims European Austerity Experience “Back[s] Up” GOP Calls For More Spending Cuts And Lower Taxes

Fox's Emanuel: “Some Experts” Say European Austerity Slowed Growth “Because It Relies Too Much On Taxation While Failing To Rein In” Government Spending. During the December 7 edition of Fox News' Special Report, Fox News correspondent Mike Emanuel discussed federal debt in a segment that compared the U.S. with Greece. Emanuel claimed that the effects of austerity measures in Europe support the Republican plan for avoiding the so-called fiscal cliff:

EMANUEL: Now, here, a leading Democrat is suggesting cutting spending too quickly is the real problem.

REID [video]: The European community now is concerned about all their austerity. There are many, many things you can do to reduce debt, but still have a stimulative aspect of the economy. 

EMANUEL: Some experts, though, say Europe's austerity is a drag on the economic growth because it relies too much on taxation while failing to rein in the expansion of government. And that would seem to back up a Republican theme in this fiscal cliff argument. [Fox News, Special Report, 12/7/12]

Emanuel: That “Would Seem To Back Up A Republican Theme” That Taxes Should Stay Low On The Wealthy. After Emanuel referenced statements by “some experts,” he claimed that they “back up a Republican theme” in ongoing budget talks. He then played a clip of Sen. John Thune (R-SD) arguing against allowing tax rates to increase on upper income brackets:

EMANUEL: Some experts, though, say Europe's austerity is a drag on the economic growth because it relies too much on taxation while failing to rein in the expansion of government. And that would seem to back up a Republican theme in this fiscal cliff argument. 

THUNE [video clip]: If we raise taxes on the top two rates, which is about a million small businesses, who employ 25 percent of the workforce, that'll cost us over 700,000 jobs, reduce economic growth, lower take-home pay, all those sorts of things. So that's a bad scenario. [Fox News, Special Report, 12/7/12]

Read why higher tax rates on the wealthy would not hurt small businesses, cost us 700,000 jobs, or reduce economic growth.

But European Austerity Measures Were A Mix Of Spending Cuts And Tax Increases ...

U.K. Committed To “An Austerity Package” Of “Spending Cuts And Tax Increases.” From a May 1 Al Jazeera op-ed by economist Dean Baker:

A little less than two years ago, the people of the United Kingdom made an implicit deal with the people of the United States. They installed a government that committed itself to an austerity package as the best way to deal with the ongoing effects of the recession.

Rather than trying to boost demand with increased spending or lower taxes, the Conservative-led coalition government committed itself to an agenda of spending cuts and tax increases. The argument was that the financial markets would be impressed by the UK's commitment to reducing its budget deficit. [Al Jazeera, 5/1/12]

Krugman: Britain's Austerity “Slash[ed] Spending.” In a January 29 New York Times column, Nobel-prize winning economist Paul Krugman wrote that Britain's austerity plan was “supposed to be a showcase for 'expansionary austerity,' the notion that instead of increasing government spending to fight recessions, you should slash spending instead -- and that this would lead to faster economic growth.” [New York Times, 1/29/12]

... Which Experts Agree Have Hurt European Economies

Dean Baker: United Kingdom Has “Given Us ... A Beautiful Example Of How Austerity Wrecks An Economy.”  In his Al Jazeera op-ed, Baker 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]

Krugman: European Economic Problems Are “A Failure ... Of The Austerity Doctrine.”  In his column, 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 New York Times1/29/12]

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 Telegraph1/17/12]

For more on how fiscal austerity hurt European economies, see here.

Experts Agree Spending Cuts Hurt A Weak Economy ...

Economist Menzie Chinn: “A Front Loaded Fiscal Contraction, Heavy On Spending Cuts” Would Make The “Current US Recovery Worse Than That Of The Great Depression.”  Comparing the U.S. economy to that of the United Kingdom, University of Wisconsin economist Menzie Chinn writes on the blog Econbrowser:

[W]e too can make the current US recovery worse than that of the Great Depression; just implement a front loaded fiscal contraction, heavy on spending cuts. Furthermore, in order to maximize the contractionary impact, harass the monetary authorities to tighten policy by inciting fears of high inflation (à la Rep. Paul Ryan), when year-on-year inflation as measured by the personal consumption expenditure deflator is 2.1%. [Econbrowser, 5/3/12]

Reich: “America's Jobs Deficit Continues To Be A Much Larger Problem Than The Budget Deficit.”  In a February 3 blog post, former Labor Secretary Robert Reich wrote:

When they're not blaming Obama for a bad economy, Republicans are decrying the federal budget deficit and demanding more cuts. But America's jobs deficit continues to be a much larger problem than the budget deficit.

In fact, we can't possibly achieve the growth needed to reduce the budget deficit as a proportion of the total economy unless far more people are employed. Workers are consumers, and consumer spending is 70 percent of economic activity. And cutting the budget means fewer workers, directly (as government continues to shed workers) and indirectly (as government contractors have to lay off workers) and therefore fewer consumers.

Yet deficit hawks continue to circle. [, 2/3/12]

Wash. Post WonkBlog: IMF Study Found “A One Dollar Change In Government Spending Could Knock As Much As $1.80 In Output From The Economy.” A post on the Washington Post Wonkblog noted that a recent International Monetary Fund study found that “budget cuts hurt growth a lot” and continued:

new study (pdf) by the International Monetary Fund raises a further warning flag for fiscal cliff negotiators in the U.S. In what it bills as the first-ever study of its kind, the fund analyzed decades of data on the world's major industrialized countries to estimate how changes in government spending or revenue affect economic output.

The news isn't good. Given current circumstances, with a U.S. economy that is growing but still trying to make up lost ground from the 2008 crisis, a one dollar change in government spending could knock as much as $1.80 in output from the economy -- what fund researchers called a “statistically significant...and sizeable” outcome. [Wonkblog, The Washington Post, 12/5/12]

... While Fiscal Cliff's Tax Increases Would Have Little Effect On Growth

IMF Study Found That Automatic Tax Hikes Under Fiscal Cliff Would Have Negligible Effect On Growth. The Wonkblog post also stated:

One brighter spot that could also influence negotiators: the growth impact of a tax hike is estimated to be negligible. The list of measures that automatically become law absent an agreement include both spending reductions and tax increases. While the spending cuts would comprise a heavy drag on growth, the fund paper suggests that a one percent rise in tax revenue would knock just 0.1 percent from gross domestic product. [Wonkblog, The Washington Post, 12/5/12]