Team Obama’s official re-election slogan is “Forward.” But in practice, it’s likely to be something more like “Sideward” — as in, “America, it could’ve been worse. Just turn your head and look at what’s been happening in Europe.”
The Obamaites and their media fans, such as New York Times columnist Paul Krugman, are already arguing that a vote for Mitt Romney and the GOP will be a vote for the sort of panicky, debt-cutting austerity that’s plunged Old Europe back into recession. (You can also expect a whispery scare campaign comparing the rise of Tea Party Republicans to the sudden ascent of Greece’s fascist Golden Dawn in last Sunday’s voting.)
It’s an obvious bit of low-rent legerdemain from folks desperate to sell a product that probably deserves a recall.
Even all the flashy special effects in“The Avengers”couldn’t make President Obama’s sickly economic rebound of stagnant incomes and record unemployment seem like a boom.
Not only is the Obama recovery the palest shadow of the 1980s Reagan Recovery, it’s doing way worse than what the president’s own economists predicted. The Obama stimulus plan was supposed to have the economy growing at a more than 4 percent clip this year — not a sputtering 2 percent. They also claimed it would have unemployment dropping fast toward 5 percent by now, not stubbornly stuck above 8 percent.
So rather than defend its economic record against its own broken promises, Team Obama wants voters to compare its record to Europe’s. What do you want, America, for another four years: Obama’s mediocre results, or Germany’s (and the GOP’s) disastrous pro-pain austerity?
All in all, a clever bit of theatrical misdirection. But it falls apart once the house lights are brought up.
Europe’s original economic sin wasn’t austerity but bringing together a group of very different economies into a currency union. Uncompetitive Greece and Italy are now stuck in the euro straitjacket, where they’re forced to devalue internally by lowering their living standards rather than externally by cheapening their currencies.
Making things worse is the decision across high-tax, high-spending Europe to raise taxes even higher, rather than cut government spending more.
Analysis by economists Alberto Alesina of Harvard and Francesco Giavazzi of Bocconi University finds that debt-reduction plans that are heavy on tax hikes usually make things worse by slowing economic growth. “It stands to reason,” they conclude, “that European countries where tax revenues are close to 50 percent of GDP do not have the room to increase revenues even more.”
Indeed, Britian decided to undo a recent tax hike on the rich after finding that the levy actually lost money.
As far as those EU spending cuts go, a new analysis from George Mason University finds thatSpain, Britain, France and Greece “haven’t significantly reduced spending since ‘austerity’ supposedly started in 2008.”
While cutting debt isn’t necessarily a form of economic stimulus, it is critical for Europe’s — and America’s — longer-term growth. A new study by economists Carmen Reinhart (of the Peterson Institute), Vincent Reinhart (Morgan Stanley) and Kenneth Rogoff (Harvard) finds that debt levels above 90 percent of GDP can lower economic growth for a generation. The US debt ratio is already more than 100 percent — and Obama has no plan to reduce it.
Is the GOP really the party of European austerity, anyway? It’s Obama, not Mitt Romney, who’s calling for EU-style tax hikes on businesses and wealthier Americans.
Americans should take a long, hard look at Europe, but not as a warning about the dangers of cutting government spending. Rather, we should see it as a cautionary tale of what happens when big government runs out of other people’s money.
James Pethokoukis is editor of The American Enterprise Institute’s Enterprise blog.