Tuesday, June 12, 2012
Who would not prefer “growth” to “austerity”? That is the
false dichotomy that insolvent Western governments, both here and abroad, are
now constructing. After all, everyone prefers growing things to starving them.
Yet in truth, there is no such clear-cut choice.
In other words, “austerity” is a lie. For all the talk of
terrible hardship and suffering, most of insolvent southern Europe still enjoys
entitlements undreamed of by prior generations. When the French lamented that
they were being squeezed to death by postponing retirement, they meant to age
62 rather than 60 — a futile reform soon to be rescinded by new French
president François Hollande.
In the case of the United States, “austerity” does not
mean significant cuts in food stamps, reductions in unemployment eligibility,
or a raised retirement age, but simply not adding new entitlements to those
that recently were vastly expanded. It is a trademark of human nature that
people resent any reduction of a benefit, or even only a moderate expansion of
it, far more than not having it offered at all. Talk today of cutting the
Medicare Prescription Drug Benefit or No Child Left Behind, and hysteria
follows — without recognition that neither program even existed before the
presidency of the unpopular George W. Bush.
But there is an even worse fraud in the new notion of
“austerity”: It now commonly refers only to the level of government spending
versus revenue, not to fundamental changes in the nature of regulated and
closed economies. “Austerity” — the pruning back of government support — is
supposed to lead to all sorts of social tensions and civic unrest. By contrast,
“growth” — even more government spending — restores calm. But if labor markets
are highly regulated and inflexible, if the tax structure is byzantine and
punishes entrepreneurs while promoting the black market and cheating, and if
government regulations crush new businesses, then the problem goes well beyond
a question of expanding or cutting government benefits.
The crisis in Greece involves not just the question
whether the government must cut services and prune its labor force, but also
the fact that the entire Greek legal system and national culture punish
risk-taking and profit-making while rewarding timidity within a landscape of
envy and jealousy. What the Greek government chooses to spend is important, but
is rendered unimportant if endemic tax cheating and the regulatory straitjacket
are left unaddressed.
In the case of the United States, had Barack Obama
reformed the tax code to promote investment and entrepreneurialism, vastly
stepped up oil and gas leasing on public lands in lieu of subsidizing
Solyndra-like boondoggles, and trimmed back regulations, the economy would have
grown far faster, even despite Obama’s vast deficits. To take an example from
the private sector, the Harvard graduate with $200,000 in student loans and a
sociology degree is in terrible shape; the Harvard graduate with the same level
of debt and an engineering or business degree is not.
But if the bogeyman term “austerity” is misleading, even
more ridiculous is the fuzzy new idea of “growth” — the notion that by not
cutting back massive borrowing and high deficits, governments can create new
wealth and grow themselves into prosperity. Here in the United States, we
“grew” by adding $5 trillion in new borrowing — and got annual GDP growth of
less than 2 percent, 40 months of 8 percent–plus unemployment, $4-a-gallon gas,
and serial $1 trillion deficits. If having near-zero interest rates, borrowing
more than all previous presidents combined, and putting 50 million people on
food stamps is a policy of “growth,” what would be needed to actually show
results? Negative interest rates? New debt of $10 trillion? More than 100
million on food stamps?
Does anyone think austere Texas is growing more slowly
than big-government California or New York? When southern-European countries
piled up trillions in debt over the last decade, did such public “stimulus” and
“growth” lead to far greater productivity, wealth, and security than in
“austere” Germany or Scandinavia?
So there is a disturbing counterfactual element of “never
enough” inherent in the “growth” argument. There is little empirical evidence
that borrowing creates national wealth, but it is still promoted on the
principle that past efforts to boost the economy by running up gargantuan
deficits always were too small. Thus Obama supposedly failed to restore the
economy in his first term only because he did not dare to borrow $10 trillion
rather than a mere $5 trillion — even though most severe recessions by now
would have given way to a natural cycle of robust recoveries.
Finally, there is one more problem with the fake
growth/austerity juxtaposition. They are both simply reflections of much deeper
ideologies that drive politics. “Growth” is a euphemism for the politics of
hiring lots of government workers, preferably unionized, and expanding the
number of people dependent on government, who in turn owe politicians their
jobs and reciprocate at the polls in expectation of even greater largesse. The
costs of expanding the number of government employees and offering them ever
higher salaries, benefits, and retirement packages are met not through
increasing productivity, but rather by increasing taxes on those who mostly
make their livings under very different conditions in the despised private
sector.
“Growth,” then, is a sort of “gorge the beast” antithesis
to the Reaganite “starve the beast” model. Both ideologies seek to avoid
insolvency through a game of chicken — of front-loading the cost and hoping the
other guy will blink first when it comes to paying for it. But where the Reagan
model sought first to cut taxes, so as to cut revenue, so as to force down the
size of government and prune federal dependency, the Obama paradigm seeks first
to grow government, which increases dependency and therefore requires more
taxes — itself a good thing because it means redistributing income from those
who have no clue that they have passed the point at which they no longer need
to make any more money.
If politicians talked not of “growth” versus “austerity”
but of “borrowing and spending” versus “fiscal discipline,” then there would be
very little public support for their disastrous agendas. Instead, we are supposed
to like the nurturers who “grow” and despise the “austere” who hack away.
It’s that simple.
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