Wednesday, July 21, 2010
Cutting back on government spending to reduce the deficit is wrongheaded, argues Hale “Bonddad” Stewart at FiveThirtyEight. Stewart says economic austerity plans have proven to be a bad idea in Europe, where the results have been high unemployment and stagnant growth. The U.S. deficit has doubled since 2001 because the government cut taxes but did not cut spending.
Stewart points to the Baltic States and Ireland as examples of the misguided approach to slashing their budgets without indulging in stimulus spending. Latvia endured an 18% reduction in its economy, and even after things stabilized, “wages have plummeted while unemployment has rocketed, with more than a fifth of the Latvian labour force out of work.”
In Ireland, the government cut public spending and raised taxes. The consequences were a 7.1% drop in economic growth and unemployment hovering above 13%, with long-term joblessness having doubled to 5.3%.
Stewart concludes that “the policy of austerity is an abject failure” and that “Countries that inject massive amounts of the proper stimulus (such as infrastructure spending) grow at high rates.”
-Noel Brinkerhoff, David Wallechinsky
The Stupidity and Hypocrisy of the Austerity Movement (by Hale “Bonddad” Stewart, FiveThirtyEight)
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