Consumer spending (70 percent of the economy) is flat or dropping because consumers are losing their jobs and wages, and don’t have the dough. And businesses aren’t hiring because they don’t have enough customers.
The only way out of this vicious cycle is for the government – the spender of last resort – to boost the economy. The regressives are all calling for the opposite ... The result will be the most stringent fiscal tightening of any large economy in the world.
Together with ongoing cuts at the state and local government level, the scale of this fiscal contraction would be almost unprecedented.
It will come at a time when 25 million are Americans looking for full-time work, median incomes are dropping, home foreclosures rising, and a record 37 percent of American families with young children are in poverty.
Even if you’re a deficit hawk this is nuts. Instead of reducing the ratio of debt to the size of the overall economy, this strategy increases the ratio because it causes the economy to shrink.
Call it the austerity death trap.
Under these circumstances, the harder a country works to cut its debt, the worse the ratio becomes — because the economy shrinks even faster.
Greece is already in the trap. Spain and Italy are perilously close. Even Britain, France, and Germany are tip-toeing up to it. And now us.
Deficit hawks have to understand: The first step must be to revive growth and jobs. That way, revenues increase and the debt/GDP ratio drops. Only then – when the economy is back on track – do you start cutting.
No comments:
Post a Comment