Romney’s plans for austerity ignore Europe’s economic woes

I used to believe, in all my naïveté, that politicians took positions and crafted policy based on evidence. Even if we disagreed, I would try to give them the benefit of the doubt, reason away the differences, assume that they were looking at a different set of data than me.

I’m not sure I still believe that. When Mitt Romney says, as is his wont, that President Barack Obama is taking political cues from “social democrats in Europe” whose policies aren’t working, he is misrepresenting both Obama’s views and the political dynamics of Europe.

Europe is not being overrun by socialists. All of the major governments are being led by center-right coalitions: David Cameron’s Tories in Britain, Angela Merkel’s Christian Democrats in Germany, Nicolas Sarkozy’s Union for a Popular Movement in France and, until two months ago, Silvio Berlusconi’s People of Freedom in Italy.

There lies the not-so-subtle irony in Romney’s remarks. Yes, Europe is stagnant. But not because of socialistic attempts at stimulus. It is stagnant because of misguided fumblings toward austerity that are much closer to the fiscal policies of Romney and Republicans than Obama and Democrats.

Britain is a good example. When Prime Minister David Cameron came to office, he promised to revitalize the British economy by cutting public spending and bringing deficits under control. His efforts to slash $130 billion in spending over four years have included everything from welfare reductions to downsizing Britain’s public workforce (projected to cost 490,000 jobs.

Two years later, Cameron’s experiment in austerity has been a dismal failure. Budget cuts have slowed growth and accelerated inflation. The pound has weakened against all 16 of the world’s most-traded currencies, including the euro. And the prospect of a double-dip recession is rearing its ugly head as GDP fell by 0.5 percent in the final quarter of 2011.

Even worse problems with austerity can be seen in mainland Europe. While austerity did not cause their troubles, Greece and Italy have found themselves trapped in its fiscal web. To reduce deficits, both countries have agreed to savage cuts in spending. But the effectiveness of the cuts has been undermined by sharp drops in economic demand, employment and tax revenues, which have left the Greeks and Italians right back where they started: mired in debt.

Meanwhile, the United States has fared quite well under the expansionary policies of President Obama. Quarterly GDP growth has risen from its depths of -8.9 percent in the final quarter of 2008 to its current level of 2.8 percent; the Dow Jones industrial average has increased by almost 60 percent since Obama took office, and more than 3.2 million jobs have been created in the last 22 months.

The contrast could not be clearer: Europe’s policies of austerity have led to stagnation, while America’s policies of stimulus have led to growth. A recent study conducted by the McKinsey Global Institute confirms this. Of the 10 largest developed countries in the world, the study found that the United States has seen the quickest and strongest economic turnaround.

Given these positive signs, it is difficult to see why Romney would point to the anemic economies of Europe as a warning against further stimulus. Europe isn’t struggling to recover because its leaders poured billions of dollars into economic relief. Europe is struggling because of the same Hooverian policies that Romney supports, policies that embrace draconian cuts even in the midst of a global recession.

Instead of berating Obama, Romney should look inward. Europe is the canary in his coal mine of poisonous economic ideas. Not only does Romney want to emulate European austerity, he wants to take it several steps further! In some dazzling defiance of arithmetic, Romney supports slashing federal spending by $6.2 trillion over 10 years in a series of cuts that would be four times as deep — and disastrous — as those made by Cameron in Britain, relative to GDP.

Nobel Prize-winning economist Paul Krugman has criticized such blind faith in austerity by comparing it to the medieval practice of a doctor bleeding his patient. Even when the doctor observes that his patient’s health is getting worse, he calls for more bleeding. The deteriorating symptoms become self-fulfilling; they reinforce the need for aggressive treatment, just as escalating debt levels have inspired renewed calls for budget cuts.

The overarching lesson from Europe should be that contractionary fiscal policy is … well, contractionary. When you remove demand from an economy, of course it is going to shrink. Remove demand too quickly and the reverberating effects can be counterproductive, making deficits worse as an economy shrinks by more than the initial cuts.

The road to economic recovery is tough. For meaningful post-recessionary growth, governments must find a way to balance short-term stimulus with long-term restraint. Our leaders must accept that deficits are unpleasant but unavoidable realities when millions are out of work and in danger of losing their homes. And we, as a people, must resist the reactionary and crippling aversion to deficits that has been spread by European leaders and Mitt Romney alike.

_Jason is a senior in Engineering and Business._