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Europe's anti-austerity vote offers lessons for U.S. policymakers

European voters weren't reacting only to the inconvenience and harshness of austerity; they were also driven by evidence that it doesn't work. Washington should be paying attention.

May 08, 2012|Michael Hiltzik
  • Supporters of Francois Hollande, France's Socialist presidential candidate, celebrate in Paris after Hollande won the election.
Supporters of Francois Hollande, France's Socialist presidential… (Balint Pornezci, Bloomberg )

The European elections have concluded and the results are clear: Voters in France and Greece are a lot smarter than economic policymakers in the United States.

Or at least they're a lot more attuned to the folly of relying on austerity as a tool of economic growth.

If you've missed the weekend's headlines, French voters elected their first Socialist president since Francois Mitterand left office in 1995. The new president, Francois Hollande, won after promising to loosen the reins of economic austerity and impose more sacrifices on the rich.

In Greece, the two leading parties, which have implemented harsh stringencies demanded by European monetary authorities, together got less than 33% of the vote. The rest went to anti-austerity rivals.

The eurovoters weren't reacting only to the inconvenience and harshness of austerity; they were also driven by evidence that it doesn't work.

In France, stringency has produced stagnation, symbolized by ever-higher unemployment claims. Greece's austerity has pushed that country clear out of recession and into depression. Voters in Ireland, Spain and Italy are also getting itchy ballot fingers.

Washington, which remains fixated on deficit-cutting while the economy continues to sputter along, should be paying attention. It's not as though the ineffectiveness of austerity as a growth nostrum is any secret.

Nouriel Roubini, one of the few economists to foretell the housing bubble's doom prior to 2008, doesn't think much of premature austerity — as in austerity imposed, say, right now. "The Eurozone has an austerity strategy but no growth strategy," he observed recently.

Without that, Roubini said, austerity and reform become "self-defeating" — not only will the absence of growth worsen government deficits, but "the social and political backlash eventually will become overwhelming."

Convincing evidence of austerity's downside comes from Britain. There a Tory-led coalition government cannonballed into the austerity pool without any prompting from the European Union, cutting government spending 20% across the board. The result is a double-dip recession and a recovery rate far below that of the U.S., where the White House and congressional Democrats put the kibosh on the most draconian austerity proposals coming from the GOP. Britain's recovery even lags behind the Eurozone, which has gotten all the bad press recently.

Another lesson suggested by the reaction of the middle and working classes in France and Greece is that what gets under voters' skin isn't merely austerity, but applying it unequally.

Here's how that applies to the policy debate in the U.S. If you're cutting Social Security benefits for the working class to preserve tax rates favoring the rich, that's unequal austerity. When interest rates on student loans are doubled and government aid for graduate students is eliminated, that's unequal austerity. When public school teachers and librarians are laid off, that's unequal austerity.

When you propose to alter Medicare so its costs to seniors rise sharply over time because the U.S. supposedly can't afford to cover its elders, that's unequal austerity. (This is the Medicare "fix" of House Budget Committee Chairman Paul D. Ryan, a Wisconsin Republican.)

This is hardly the first time in history that policy fetishes favoring only a small segment of the population have been fed to the middle class and the working class as necessary medicine. Nor is it the first time that those fetishes have proved to be shortsighted. The last great economic truism that turned out to have feet of clay was the gold standard.

From the 1880s through the 1920s, the gold standard solidified into an ideology spanning Europe and the United States. All economic decision-making was geared to protecting the gold standard at the expense of everything else. It was always preferable to let wages slide and lay off workers than tinker with gold-based exchange rates; this policy protected the banker and the bondholder, but impoverished the laborer and the farmer.

This inequity wasn't lost on the latter, who carried William Jennings Bryan to the Democratic nomination for president in 1896 on the strength of his opposition to the gold standard. That's the crux, so to speak, of his legendary "cross of gold" speech delivered at that year's Democratic convention. Bryan lost the election, but his campaign placed the gold standard on the table, politically.

After World War I, when American farmers were getting hammered by deflation — another legacy of the gold standard — it moved to the center again. The international gold fetish deepened the economic slump, and after Britain abandoned it in 1931, its reigning champion became Herbert Hoover. As Henry Morgenthau, Franklin D. Roosevelt's Treasury secretary, observed several years into the New Deal, Hoover defended the gold standard "under the impression that it was a proud achievement, when it was obviously economic suicide."

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