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Lessons from Europe's debt crisis
Commentator David Frum.
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TEXT OF COMMENTARY
Kai Ryssdal: There was the faintest glimmer of hope in European finance circles today. Investors snapped up a new Spanish government bond that went on sale this morning. Part of that is because Madrid offered a pretty high interest rate. They had to given the debt squeeze that's going on over there right now. But part of it could be because some of the worries about actual government defaults have dissipated.
Commentator David Frum figures President Obama ought to be paying pretty close attention.
DAVID FRUM: Last week the government of Spain announced big cuts in government spending: $70 billion over the next three years. Allowing for the difference in size between the American and Spanish economies, that's almost an Obama stimulus in reverse. The Spanish package contains a lot of gimmicks, but pensions will be cut, job-creation schemes halted, and the retirement age raised to 67.
Ireland has swallowed even harsher medicine. Portugal, Greece and probably Italy will soon follow.
These countries are cutting deficits in the throes of the worst recession since World War II. They are making these choices because they perceive the alternative as worse: a risk that budget deficits will create market pressures that will force them off the euro.
These governments -- and others in Europe -- are accepting higher unemployment in order to defend their currency. That's the policy choice that got Herbert Hoover such a bad name. Back then, the currency was the gold-standard dollar, but the principle is the same.
And yet, while Spain's socialist government has seen its poll numbers drop, neither Spain, nor Greece, nor Portugal, nor Ireland is experiencing serious public pressure to quit the euro.
To the leaders of these countries, the euro means Europe, and Europe means prosperity, stability, democracy, and peace. The leaders of virtually all major parties made this argument to voters, and the voters have accepted it.
Populism is seldom as popular as pundits imagine. Protectionism may do well, but it's the free traders who win the elections.
If leaders want to summon voters to look past the difficulties of the moment, they have to make that case forcefully and unapologetically. When President Obama said in his State of the Union address, "We all hated the bank bailout," he made his own job vastly more difficult. If you are going to defend something tough, then defend it. Events will prove you right or wrong, and in the latter case, there will be an eternity in which to express regret.
RYSSDAL: David Frum is a resident fellow at the American Enterprise Institute.
If austerity measures work for Spain, that doesn't mean the U.S. can solve its very different problem with the same cure. The U.S. is at the limit of wealth inequality the economy can bear, with the top 20% owning over 80% of all wealth, according to NYU economist Edward N. Wolff. Taking even more from the other 80% isn't going to make things better.
Interesting. Neocons with no real credibility on economic issues tell Europe they're doing it all wrong.
Meanwhile, the Corporate Capitalism espoused in the USA is not subjected to a moment's examination, although it has clearly failed, and failed catastrophically. But neither David Frum nor Jonathan Lovelace will be able to admit that because the media won't report it and they won't make themselves see the failure on display 24x7 as we dig ourselves out of the Bush Depression.
Right Mr. Frum. I notice you do not discuss taxes in your paean to austerity for the poor and middle class. I would be willing to bet a few euros that the wealthy pay far higher taxes in those European countries, and I'm not hearing anyone say that those taxes should be reduced. Here, we're giving an huge tax break to the wealthy via the elimination of the estate tax, and you want to balance the budget on the backs of retirees.
Mr Frum seems to have confused to very different pillars of the European Union, the common market, and the common currency. If Greece defaults on its loans and is forced to leave the Euro, it will still be a member of the common market, and able to trade its goods with other member states. So free trade can not be the reason the popularity of the Euro. Ironically, it is the stronger regulatory environoment in Europe which is forcing countries like Spain and Ireland to reign in their spending, an environoment Mr. From would normally vehemently oppose.
The lesson of the last century, which these countries finally seem to be applying, is that *socialist schemes don't work.* This story takes a jab at Hoover, but FDR's policies made the Depression longer. I predict that the countries that make the steepest cuts are among the first ones out of the present recession. Again, Reagan was right: "Government is not the solution to our problems. Government is our problem."
