NEW YORK TIMES: Unemployment has surpassed Great Depression-era levels in Southern Europe. Recession is drifting to the once resilient economies of the north. Even some onetime hawks on government spending say they cannot cut any more.
After years of insisting that the primary cure for Europe’s malaise is to slash spending, the champions of austerity, most notably Chancellor Angela Merkel of Germany, find themselves under intensified pressure to back off unpopular remedies and find some way to restore faltering growth to the world’s largest economic bloc.
On Friday, Prime Minister Mariano Rajoy of Spain, who once promoted aggressive budget cuts, became the latest leader to reject European Union targets for reducing deficits… (more)
EDITOR: The price of democracy is that all too often damn fools who ignore history and factual information get to set policy. Austerity is no cure for a sharp recession; rather it is pouring gasoline on a fire. Moreover, the idea of a single Euro for all of Europe is patent nonsense and the cause of much of the region’s economic malaise.
Knowledgeable experts are ignored; demagogues and ignoramuses are treated as sages. That is the way of the world. And what would be a better alternative form of governmental system? All the others have proven worse.
It isn’t how much public debt there is. The issue is what is the ratio of debt to total Gross National Product (GNP). (Millionaires often owe more money than the average person.)
Cutting fiscal spending leads to greater unemployment and governmental costs, thus increasing debt and reducing GNP. Fiscal stimulus (through deficit spending) puts people to work and reduces governmenet subsidies. This leads to recovery, increases GNP, balances teh federal budget which in turns shrinks the ratio of national debt to GNP.
Moreover, subsidies to the unemployed helps them and to a certain extent the economy, but it creates no assets. Putting people to work building roads, repairing bridges, educating the youg creates assets. It is the difference between losing money the race track and investing in a new house. In the latter case, you have an asset to offset a debt.
With recovery, today’s 80% ratio of national debt to annual GNP would likely soon fall into the 70s, a very healthy condition.
