Why Europe's Double Dip Could Lead to One in United States
Robert B. Reich
Why should we care? Because a recession in the world's third-largest economy (
Remember, it's a global economy. Money moves across borders at the speed of an electronic impulse.
Meanwhile, goods and services slosh across the globe. If there's not enough demand for them in the world's second- and third-largest economies, demand in the U.S. can't possibly make up the difference. That could mean higher unemployment here as well as elsewhere. The U.S. economy is already showing signs of slowing.
Blame it on austerity economics -- the bizarre view that economic slowdowns result from excessive debt, so government should cut spending.
First, the real issue isn't debt per se but the ratio of the debt to the size of the economy.
In their haste to cut the public debt, Europeans forgot the denominator of the equation. By reducing public spending, they removed a critical source of demand at a time when consumers and the private sector are still in the gravitational pull of the Great Recession. The resulting slowdown is worsening the ratio of
A large debt with faster growth is preferable to a smaller debt sitting atop no growth at all. And it's infinitely better than a smaller debt on top of a contracting economy.
The second big truth they've overlooked is the social cost of austerity. Cutting spending during a time of high unemployment and flat or declining wages doesn't just worsen unemployment. It also removes public services and safety nets that people depend on when times are tough.
This causes political upheaval. Last week, Dutch Prime Minister
Such social and political instability is itself a drag on growth, generating even more uncertainty about the future.
Even if the U.S. economy (as well as President Obama's re-election campaign) survives
It may be too late for
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Why Europe's Double Dip Could Lead to One in United States | Politics
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