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A divide over sustaining global recovery

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TEXT OF STORY

Kai Ryssdal: There are big economic doings up in Canada this week. The G-20 summit will be in Toronto. The agenda will be pretty much the same as its been for the past two or three years -- how to steer the global economy out of financial crisis and recession. There's a small twist this time, though, some discontent between the U.S. and the Europeans. Europe -- and much of the rest of the world -- has debt on its mind; austerity and frugality. The Obama administration, meanwhile, says we need more government spending to sustain the recovery.

From Washington, Marketplace's Nancy Marshall Genzer reports.


Nancy Marshall Genzer: Europe wants to tackle its debt. Nobody wants to become the next Greece. But President Obama is warning world leaders not to tighten their belts so much they choke off economic growth. The White House wants to avoid a "Hoover moment" -- repeating President Herbert Hoover's mistake of cutting government spending too early. That prolonged the Great Depression.

Kenneth Rogoff: This is absolutely the main topic in the G-20.

Kenneth Rogoff is an economist at Harvard. He sides with the Europeans in this fiscal fight. He says they're proposing sensible austerity measures, while the U.S. risks another financial crisis in Europe by pursuing global economic growth.

Rogoff: We're talking about reducing growth slowly at a measured pace, versus risk of a round two on the financial crisis.

Jacob Kirkegaard is an economist at the Peterson Institute. He says the global economy won't take a big hit from the European measures.

Jacob Kirkegaard: That's going to take European growth down to about 1.5 percent rather than perhaps 1.8, perhaps 2 percent. And that, quite frankly is, again, not something that warrants a huge fight over this issue.

U.S. exports could be hurt by Europe's tighter budgets. Less stimulus spending means less demand. But how much do we sell to Europe, anyway?

Bob Eisenbeis is chief economist at Cumberland Advisers.

Bob Eisenbeis: The health of our economy is not critically dependent upon marginally changes in the level of exports to Europe. We have a lot of trading partners.

And many of those partners are expected to agree to disagree with the U.S. at this week's summit.

In Washington, I'm Nancy Marshall Genzer for Marketplace.

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If only Marketplace had been able to find even a single economist who supported the Obama Administration's position. http://krugman.blogs.nytimes.com/ There was a time when this show at least made an effort not to be a mouthpiece for Wall Street. It now seems to be interested in nothing but defending policies that preserve the position of the wealthy while normal Americans suffer with at least 10% unemployment for years into the future. You know, some people aren't actually fans of the Pain Caucus. Perhaps Marketplace could occasionally find a place for them on the show.

Actually, if we're talking Depression-worsening policies: As Thomas Sowell recently proved by citing the era's unemployment statistics, Hoover's intervention in 1930 by raising import tariffs stopped a natural downward trend in the unemployment rate and immediately caused the unemployment rate to skyrocket to above 20 percent, more than double the brief spike to 9 percent caused by the crash, where it stayed for nearly two years despite further intervention. And, as Sowell points out, there was a similar crash in 1987 that was followed by growth because the government didn't *try* to "fix" it. The lessons of history are clear: Protectionism, subsidies, and government spending *always* make economic problems *worse.*

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