I have always been a supporter of austerity economics. In times of crisis, such as the one currently plaguing the European Union, a government must be able to show creditors that it is stable and solvent enough to keep borrowing rates down and investor confidence high.
Obviously, an increase in government expenditures yields an increase in GDP. It’s in the definition of the term (Consumption + Investment + Government Spending + [Exports – Imports] = GDP). However, I had always been skeptical of the impact that spending has on the economy. The most often-referenced example of the success of deficit spending, FDR’s New Deal during the Great Depression, had less of an impact on the economy than the war that followed — war demands are good for business.
But two recent developments have me rethinking my position. Last December, the United Kingdom’s Chancellor of the Exchequer, George Osborne, admitted the conservative government in power had failed to meet the deficit-reduction goals it set back in 2010. This bit of bad news was coupled with the announcement that the British economy had shrunk, unemployment had risen, and a triple-dip recession was looking possible, if not likely.
Osborne’s plan included cuts in government spending as the primary method of meeting the goal. Now that the policy has failed, a reasonable individual would have admitted their confidence in austerity measures has been shaken, at the very least.
The situation served as a sort of real-world lab in which the effects of economic policies can be measured. While not perfect, it provides evidence that austerity, at least by itself, is not the quickest way out of a recession.
What finally ended my austerity beliefs, however, were my experiences in Spain this past month-and-a-half. Not a great length of time, you might say. I agree, but it takes very little time to understand the sentiment of a population struggling under the weight of a serious economic crisis. And the ideas propagated by austerity-believers are making the situation worse. In this case, our dictator is Germany.
It’s no secret that Germany steers the European Union. As its largest economy, with an estimated GDP of $3.194 trillion in 2012, the country has considerable weight to throw around within this uneasy union. It has used its power to dictate terms to other member nations regarding the reduction of their debt, a situation that many countries resent.
On second thought, to say they resent it might be putting it lightly. German Chancellor Angela Merkel is perhaps the least-liked figure in Europe. She has worked to impose austerity measures on the governments of struggling nations such as Greece, Spain and Portugal.
The Germans take the position that the reckless borrowing and spending of many European nations, a trend that didn’t have enough time to gain footing in Germany, is to blame for the current crisis. The German people resent the idea of having to bail out their fellow countries and have imposed deficit-reduction deadlines. Merkel also insists that these be met through austerity.
The result has been governments cutting back on services and programs during a time when hope is already scarce. In Spain, where unemployment shows no signs of falling from 26 percent, a whole generation is coming of age in a country with little hope of employment. Many people are simply leaving to find opportunities elsewhere, and the resulting situation is a Spain not positioned for future growth.
But even if the government was instituting growth measures, you might say, the situation would not be much better, even in the best-case scenario. This is likely true, but the goal of government, at the end of the day, should be to improve the lives of its citizens. Policies should be giving people hope, not frustration, and I believe it’s easy to lose this human element when staring at a blackboard full of graphs and equations.
So I have been presented evidence that my economic beliefs are flawed, coupled with the realization that my thinking has been somewhat narrow-minded. Call me what would have disgusted me six months ago: a freshly minted supporter of bigger government spending.
Dan Ryan is a Weinberg junior. He can be reached at [email protected]. If you would like to respond publicly to this column, email a Letter to the Editor to [email protected].
