The G20 Votes for Global Depression
Monday, 06/7/2010 - 12:00 pm by Marshall Auerback and Robert Parenteau
How global ‘fiscal austerity’ benefits bankers and wealthy, well-connected political insiders, while screwing the rest of us.
The Communiqué of the past weekend’s G20 meeting illustrates that deficit hawks have gained ascendancy in global policy making circles. Great Depression II, here we come.
“Those countries with serious fiscal challenges need to accelerate the pace of consolidation,” the Communiqué noted. “We welcome the recent announcements by some countries to reduce their deficits in 2010 and strengthen their fiscal frameworks and institutions.”
European Central Bank President Jean-Claude Trichet said fiscal tightening in “old industrialized economies” would aid the global economic “expansion” by shoring up investor confidence. German Chancellor Angela Merkel said Germany was poised for a “decisive” round of budget cuts that would shape government policy for years to come.
Although, the global economy has revived somewhat from its post Lehman collapse, it hardly merits Trichet’s characterization of “expansion”, given prevailing double-digit unemployment across the globe. And global recovery will be severely hampered if active fiscal policy support — the kind of government stimulus required to sustain higher levels of growth and employment — is completely abandoned, as the G20 discussions suggest. The new remedy for collapsing demand is “budget consolidation” — a weasel term designed to mask more spending cuts in vital social services. more
This is Not Good Economic Policy
How the Deficit Hawks are Robbing Jobs
By DEAN BAKER
Friday's U.S. jobs report caught most economic analysts by surprise. After touting the strength of the recovery for months, they had to come to grips with the fact that the economy just is not creating very many jobs.
If the temporary jobs generated by the census are pulled out of the count, the economy created just 20,000 jobs in May. The average rate of growth of non-census jobs over the last three months has been just 130,000 a month, only slightly faster than the growth of the workforce. At this rate of job growth, it will take decades, not years, to get back to normal levels of unemployment. It's time that we stop the happy talk about recovery and get serious about the country's economic problems.
Once again, the reason for this downturn is very simple, even if most of the country's top economists were (and are) unable to see it. We saw an $8 trillion housing bubble and a somewhat smaller bubble in non-residential real estate collapse. This bubble had been driving the economy prior to the recession.
The bubbles directly generated close to $500 billion in annual demand by stimulating construction. The housing wealth created by the bubble indirectly spurred another $500 billion in demand by lifting consumption. With the destruction of this wealth consumption has now been drastically curtailed. The question is not one of consumer sentiments. Consumers are not spending for the same reason that homeless people don't spend: they lack the money. more
Do Deficit Hawks Think Market Signals Are Totally Meaningless?
Joe Weisenthal | Jun. 6, 2010
Paul Krugman is now totally convinced that we're headed for (another?) lost decade, as he's particularly bummed by the G20's call for greater austerity in a time of continued economic weakness.
The last line of his latest post is important:
Yet the conventional wisdom now is that these countries must nonetheless cut — not because the markets are currently demanding it, not because it will make any noticeable difference to their long-run fiscal prospects, but because we think that the markets might demand it (even though they shouldn’t) sometime in the future.
Whether you think Krugman's "spend, spend, spend" philosophy is right or not, you have to acknowledge this much to be true: The market is giving zero indication that it's concerned about US spending. The dollar is strengthening and yields are falling.
The hawks may say "sure, but look at Greece," to which the non-hawks can say "sure, but look at Japan" and of its decades of rising bonds and a stronger currency, amidst the backdrop of more and more debt.
But apart form the theoretical, is it reasonable to say that deficit hawks -- usually so obsessed with market signals -- have decided this is a big one we can freely ignore, since it doesn't align with ideology? more