Daily Austerity Watch: Nobel Winner Joseph Stiglitz Talks Sense

Economist Joseph Stiglitz would win the Nobel Prize for plain talk if such an thing were ever awarded.

Stiglitz, a professor at Columbia University, had a simple message today for political leaders in European Union and the United States:  Austerity does not work and prevents countries from creating jobs.

“Austerity is an experiment that has been tried before with the same results,” Stiglitz is quoted by Bloomberg News as saying to an audience in Copenhagen.

Of course, he’s right.   People don’t get more with less.   Businesses have to spend money to make money.   They can’t cost cut their way to prosperity, and neither can governments.   It’s common sense, but try telling that to the Republicans in Congress or leaders in Europe in the grips of what Stiglitz refers to as “deficit fetishism.”

The U.S. may max out its $14.3 trillion debt ceiling by August 2, and Republicans are demanding trillions of dollars in spending cuts in return for their support of what is supposed to be a routine matter.   Vice President Joe Biden expressed tepid optimism yesterday that deficit reduction talks he is heading were going well.   Republicans have tied their support for raising the debt ceiling to cutting the deficit.

Boehner, an Ohio Republican, is reportedly seeking $2 trillion in cuts in exchange for raising the debt ceiling high enough to last through the 2012 presidential election.   Democrats,so want to raise taxes on the rich, are pushing back and are seeking a clean (amendment-free) bill.  Of course, the chances of that happening are slim to none.

Critics of Obama’s economic policies downplay the significance the $787 billion stimulus bill provided the economy.  They also neglect to point out that taxpayers have turned a profit on most government bailouts.  Indeed, most economists say the economy would be far worse off without these policies.

“A 2009 U.S. stimulus package increased the number of people employed by between 1.4 million and 3.3 million and cut unemployment by 0.7 percentage point to 1.8 percentage point, according to U.S. CBO,” the new service says.

The situation in Europe is worse.   As Bloomberg notes, European officials are expecting the region’s economic growth to lag the U.S. both this year and next.   Greece will probably need another bailout and Portugal and Ireland remain in miserable fiscal shape.  The rest of the continent is doing alright, though.   The strength in Germany and France propelled the euro-zone nations to have their strongest annual growth rate in more than three years. Speculation abounds that the European Central Bank will raise interest rates.

But the biggest threat to austerity in the U.S. and Europe isn’t inflation, it’s psychology.  The notion of shared sacrifice is much easier to swallow when everyone is suffering.   Now that some countries in are beginning to recover — in spite of high gas prices — people want to be rewarded for enduring the hardships they endured from the recession.   Politicians who support fiscal austerity have a tough job ahead of them.

–Jonathan Berr