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Hullabaloo


Monday, December 03, 2012

 
"It may be about to get worse"

by digby

This seems to me that this should be an important story:


Visit NBCNews.com for breaking news, world news, and news about the economy
"For many states that had to resort to truly deep cuts and blunt instruments to balance their budgets over the last few years, it may be about to get worse."
No, America isn't Greece and neither is Mississippi. But we do have these distinct government entities which are locked into austerity and they are a drag on the country as a whole so the situation isn't completely different from Europe. And that's another very good reason why the federal government should be stimulating not cutting (and why it shouldn't be selling off the future security of its citizens for appearances sake either.) I'm sorry that everyone is irrational about budget cutting (thanks to bipartisan propaganda that implies it will be good for an ailing economy -- the leeches theory.) But that doesn't change the fact that we do not need austerity right now at the federal level, largely because many of our states are dying from it already. Just in case everyone's forgotten what's been happening in Europe due to our endlessly exciting cheerleading for tax hikes on rich people, here's a reminder from Krugman from just a couple of months ago:
Just a few days ago, the conventional wisdom was that Europe finally had things under control. The European Central Bank, by promising to buy the bonds of troubled governments if necessary, had soothed markets. All that debtor nations had to do, the story went, was agree to more and deeper austerity — the condition for central bank loans — and all would be well. 
But the purveyors of conventional wisdom forgot that people were involved. Suddenly, Spain and Greece are being racked by strikes and huge demonstrations. The public in these countries is, in effect, saying that it has reached its limit: With unemployment at Great Depression levels and with erstwhile middle-class workers reduced to picking through garbage in search of food, austerity has already gone too far. And this means that there may not be a deal after all. 
Much commentary suggests that the citizens of Spain and Greece are just delaying the inevitable, protesting against sacrifices that must, in fact, be made. But the truth is that the protesters are right. More austerity serves no useful purpose; the truly irrational players here are the allegedly serious politicians and officials demanding ever more pain. Consider Spain’s woes. What is the real economic problem? Basically, Spain is suffering the hangover from a huge housing bubble, which caused both an economic boom and a period of inflation that left Spanish industry uncompetitive with the rest of Europe. When the bubble burst, Spain was left with the difficult problem of regaining competitiveness, a painful process that will take years. Unless Spain leaves the euro — a step nobody wants to take — it is condemned to years of high unemployment. But this arguably inevitable suffering is being greatly magnified by harsh spending cuts; and these spending cuts are a case of inflicting pain for the sake of inflicting pain.  
First of all, Spain didn’t get into trouble because its government was profligate. On the contrary, on the eve of the crisis, Spain actually had a budget surplus and low debt. Large deficits emerged when the economy tanked, taking revenues with it, but, even so, Spain doesn’t appear to have all that high a debt burden. It’s true that Spain is now having trouble borrowing to finance its deficits. That trouble is, however, mainly because of fears about the nation’s broader difficulties — not least the fear of political turmoil in the face of very high unemployment. And shaving a few points off the budget deficit won’t resolve those fears. In fact, research by the International Monetary Fund suggests that spending cuts in deeply depressed economies may actually reduce investor confidence because they accelerate the pace of economic decline.
Again, I'm emphatically not saying that Europe's woes are exactly like ours. But logic says that if you have austerity in one part of the union, any union, it's going to be a drag on the rest. Ignoring that isn't going to change it.

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