Experts: Austerity Hurts A Weak Economy

IMF: “Fiscal Consolidation Typically Reduces Output And Raises Unemployment In The Short Term.” From the IMF's 2010 World Economic Outlook:

Based on a historical analysis of fiscal consolidation in advanced economies, and on simulations of the IMF's Global Integrated Monetary and Fiscal Model (GIMF), it finds that fiscal consolidation typically reduces output and raises unemployment in the short term. [IMF, World Economic Outlook, 10/10]

Wash. Post: IMF Paper Shows “Austerity Does Ugly, Ugly Things To A Country's Economy In The Short Term.” From Brad Plumer writing at The Washington Post's Wonkblog:

In a new paper for the International Monetary Fund, Laurence Ball, Daniel Leigh and Prakash Loungani look at 173 episodes of fiscal austerity over the past 30 years -- with the average deficit cut amounting to 1 percent of GDP. Their verdict? Austerity “lowers incomes in the short term, with wage-earners taking more of a hit than others; it also raises unemployment, particularly long-term unemployment.”

[...]

Now, this doesn't mean fiscal consolidation is never worth pursuing. Some countries do run up against unmanageable debt levels. And the IMF cites a number of ancillary benefits that come from reducing deficits, such as lightening the burden from interest payments. But the historical record is clear: Austerity does ugly, ugly things to a country's economy in the short term, which is why the IMF now recommends passing deficit-reduction plans that kick in only “when the recovery is more robust.” [The Washington Post, 9/13/11]

Krugman: European Economic Problems Are “A Failure ... Of The Austerity Doctrine.” In a January 29 New York Times column titled “The Austerity Debacle,” Nobel Prize-winning economist Paul 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.

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The infuriating thing about this tragedy is that it was completely unnecessary. Half a century ago, any economist -- or for that matter any undergraduate who had read Paul Samuelson's textbook “Economics” -- could have told you that austerity in the face of depression was a very bad idea. But policy makers, pundits and, I'm sorry to say, many economists decided, largely for political reasons, to forget what they used to know. And millions of workers are paying the price for their willful amnesia. [The New York Times, 1/29/12]

Nobel Economist Stiglitz: “More Austerity” In Europe Is “A Mutual Suicide Pact.” A January 17Telegraph 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.

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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 Telegraph, 1/17/12]

Christina Romer: “Because Of The Harsh Effect Of Budget Cutting On Growth, Debt-To-G.D.P. Ratios In Europe Have Continued To Rise.” In an April 29 New York Times op-ed, Christina Romer, University of California at Berkeley professor and former chairwoman of the White House Council of Economic Advisers, noted that “austerity is uniquely destructive” in the current economic climate. From The New York Times:

It has been two years since moves to austerity started, but the crisis is still with us. Growth in European gross domestic product was negative in the last quarter of 2011. Unemployment in the entire euro zone in February was 10.8 percent; in Spain it was an astounding 23.6 percent. And judging from the renewed turbulence in bond markets, investors don't believe that prosperity is just around the corner.

Fiscal austerity is normally a sensible response to a loss in confidence in a country's solvency, as has occurred in parts of Europe. But the current situation is exceptional. Short-term interest rates are very low, so large rate reductions to offset the negative impact of budget cutting are impossible.

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The result is that austerity is uniquely destructive right now. Indeed, because of the harsh effect of budget cutting on growth, debt-to-G.D.P. ratios in Europe have continued to rise. [The New York Times, 4/29/12]

Dean Baker: United Kingdom Has “Given Us ... A Beautiful Example Of How Austerity Wrecks An Economy.” In a May 1 Al Jazeera op-ed, Dean Baker, co-founder of the Center for Economic and Policy Research, 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.

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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, second-estimate-of-gdp-q4-2011.html">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.

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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]

Former WH Economist Jared Bernstein: Austerity “Doesn't Work Here, It Doesn't Work In Europe, It Doesn't Work For State And Local Governments.” In a May 4 Rolling Stone blog post, Jared Bernstein, a former White House economist and current Center on Budget and Policy Priorities senior fellow, wrote that austerity “doesn't work here, it doesn't work in Europe, it doesn't work for state and local governments.” From Rolling Stone:

This just in: AUSTERITY DOESN'T WORK!

It doesn't work here, it doesn't work in Europe, it doesn't work for state and local governments. I'm tempted to ask how many data points we need to recognize this crucial economic truth, but I'm afraid data points don't have much to do with it. [Rolling Stone, 5/4/12]

Indeed, Wisconsin Has Seen Some Of The Worst Jobs Growth In The Country

BLS: Nearly 13,000 Jobs Lost In Wisconsin Since January 2011. Data from the Bureau of Labor Statistics show that since Walker became governor in January 2011, Wisconsin has lost 12,800 jobs, as of April:

[Bureau of Labor Statistics, accessed 6/4/12]

Journal Sentinel: Wisconsin's Jobs Numbers During Walker's First 13 Months In Office Was The “Worst Among The 50 States.” In March, the Milwaukee Journal Sentinel compared job gains and losses among all 50 states between December 2010 and January 2011 and found Wisconsin's performance under Walker to be the “worst among the 50 states”:

[Milwaukee Journal Sentinel, 3/15/12]

Fox's False Spin: Walker's Win Shows Austerity Is The Right Idea

Hannity: Without Budget Cuts And Jobs Growth, Walker Would Have Been “Thrown Out Tonight.” From Fox News' Hannity:

HANNITY: If [Walker] wasn't able to take that $3 billion deficit, turn it into a $150 million surplus, if he didn't create jobs, if he didn't have unemployment under the national average, this wouldn't have happened.

HUGH HEWITT (radio host): Oh, he'd be thrown out tonight

HANNITY: He'd be thrown out tonight. [Fox News, Hannity, 6/5/12]

Palin: America Will Realize That “Austerity Measures Of Reining In Government Growth Really Will Help Our Nation As A Whole With The Economic Woes That We Face.” From Fox News' On the Record with Greta Van Susteren:

VAN SUSTEREN: Your thoughts on tonight's news that Governor Walker is the winner?

PALIN: It is such good and encouraging news, Greta. It's good for the entire country because people are going to recognize through Governor Walker's efforts that austerity measures, responsible austerity measures of reigning in government growth really will help our nation as a whole with the economic woes that we face. This is positive news, and I think that Wisconsin is living up to its state's motto -- that providential motto of “Forward.” They're moving forward. They're going to help to lead the charge for the rest of the country -- reigning in government growth, allowing the private sector to be the ones to create jobs. [Fox News, On the Record with Greta Van Susteren, 6/5/12]