Friday, May 25, 2012

Austerity shmausterity

The Post-Dispatch printed my letter about their ridiculously innacurate editorial about the European crisis.  Here's my letter, which is slightly less snotty than the version I submitted.

Imaginary monetary policies
The editorial board's analysis of the European financial crisis in "Far-away quarrels" (May 23) is way off the mark on the situations in Europe and the United States. For example, the editorial says that the problems in Europe are rooted in a fatal flaw in Europe's monetary system: "a common currency, but no central bank." In fact, the European Central Bank was established when the euro was adopted.
The editorial said that "the GOP is convinced that pure austerity is the way to growth. It's not likely to work here any better than it's working there." In fact, austerity is not close to being on the table in the United States and is being pursued only in the small number of European countries, such as Greece and Spain, that have run out of other options. The GOP and President Barack Obama's Bowles-Simpson commission have proposed structural reforms aimed at establishing sustainable fiscal policies. Under the Ryan plan, for example, federal spending as a share of GDP would rise over the next 20 years from 21.6 percent to 24 percent. Is that pure austerity?
Pure austerity is when unsustainable fiscal policies lead to the ruin of government finances because structural reforms had not been put in place. The United States should be having a debate about which fiscally sustainable future we want: the Ryan and Bowles-Simpson plans, for instance, have very different visions of how the federal government is financed. Instead, we get editorials claiming that the choice is between an imaginary policy of pure austerity and pro-growth policies that are nothing of the sort.
Howard Wall • St. Charles
Director, Institute for the Study of Economics and the Environment, Lindenwood University
I made these same points in a post the other day. The post has a bit more red meat to it.