MUFTIC FORUM BLOG

Lessons from Europe are not just about Greece.  The GOP is so fond of scaring the American public about the size of the debt and warning us we will go Greece's way.  In the long term there is no doubt we must clean up the debt. About 40% of the debt is due to the reduction in income to the Treasury that can be cured by economic growth.
There are three  routes on the table: 1) The Paul Ryan plan as embraced by Mitt Romney except for his Debate #1  revisions of additional 20% tax cuts offset by closing loopholes and deductions which every non ideological think tank said would be inadequate to plug the revenue loss.2) the Simpson-Bowles Commission Recommendations to make two dollars of cuts to one dollar of increased revenue, 3) and the Grand Bargain proposed by Pres. Obama, with even more cuts in ratio to  tax increases. Obama's plan is  based on a  more detailed, revised version of Simpson Bowles. However, it  was immediately rejected by the Tea Party controlled House of Representatives because it violated their member's pledge to Grover Norquist never to raise one penny  of taxes.

 The GOP's belief is that one solves the deficit problem in two ways: cut everything  in the budget   and lower taxes on the upper income brackets so that the wealthy invest and the largess trickles down to the middle class and the poor. To achieve a balanced budget would require a 30% cut in government expenditures, either across the board or taking a meat cleaver to specific programs. That approach is called austerity.

Neither Obama nor the GOP have been purists either way because even the 2009 stimulus contained tax cuts and large cuts to government expenditures are also part of the President's Grand Bargain.  Mitt Romney has proposed increasing the Pentagon budget by $2 trillion over 10 years, reducing taxes 20% across the board, keeping the Bush tax rates for the wealthy.  Just increasing Pentagon expenditures alone would  result as  financier Steve Rattner calculated in the need to cut everything else 40%.  

The lesson to learn from Europe is not that debt is bad; it is the wrong way to solve the debt problem.
Nicholaus Kristoff, writing in the New York Times today made the point that Europe tried the austerity approach while Pres. Obama tried low taxes and  government stimulus programs.  While neither  were robust, the stimulus approach has had better results. "The International Monetary Fund this month downgraded its estimates for global economic growth, with only one major bright spot in the West. That would be the United States, expected to grow a bit more than 2 percent this year and next.
In contrast, Europe’s economy is expected to shrink this year and have negligible growth next year. The I.M.F. projects that Germany will grow less than 1 percent this year and next, while Britain’s economy is contracting this year."

A  couple of  months ago , my husband and I  spent our vacation  in Europe. . I had   only spotty access to the internet and the international version of CNN and England’s Sky News as my English language contact with the world. I expected it would be just a relaxing, leisurely  getaway  . It was,  but it was also  a learning experience  .

Coverage of English  domestic news  was dominated by the the shake up of the Conservative Government of Prime Minister David Cameron, as he sought to change course.  When he assumed office two years ago, his answer to the world financial crisis was  to slash  many  government funded services   with an unabashed program of austerity.  .  The result in the UK was a double dip recession and  continued high  unemployment numbers , a  contrast  with continued, but slow  US growth and decrease in unemployment  from a high of over 12% to  just over 8%. .  Compared to Europe’s stagnant growth, the US has done much better..  We may think of Obama’s recovery  as either tepid or a failure, but  we have come through the economic crash of 2008 in better shape than Europe.

 Cameron’s change of course  could be taken as  a tacit admission that austerity had failed.. Cameron’s   direction  now differs from the US brand  of  conservatism of  small government, reduced taxes paid for by cuts in social programs . In fact, what Cameron  proposes is  to increase government  investment in infrastructure and education  in order to help business create jobs.  Cameron was attempting to stimulate the economy with more active government participation.  Sound familiar? It should. It resembles the Obama approach in his jobs plan rejected by the GOP dominated House.

 To say that the 2012 presidential  election is not about choice   assumes that any other approach would be better than Obama’s.. While we may be unhappy with the Obama recovery . just firing him  does not mean replacing him with GOP trickle down austerity is  better.  It is possible it could be worse.. .  We need to be aware  the GOP approach has a  track record of failures to recover from a financial  sector meltdown, such as we experienced in  the 2008 Crash, similar to the UK’s recent  experience.