Yves here. As much as Bill Black’s post makes a number of important observations about how the pro-austerity camp is misrepresenting its cause and the situation in Europe, it is also looking like Romney’s backers will win even if they lose. Recall that Obama himself is a budget hawk; we’ve discussed repeatedly how “reforming” Social Security and Medicare are long standing priorities of his. There was even a point in the budget negotiations of late 2011 where Obama was pushing for deeper cuts than Boehner. But the aggressiveness of Ryan’s talk will give Obama plenty of air cover, and as Dave Dayen has separately pointed out, take the focus off of some of Obama’s failures, such as the state of the economy and his refusal to provide anything beyond Potemkin reforms in the housing market.
By Bill Black, the author of The Best Way to Rob a Bank is to Own One and an associate professor of economics and law at the University of Missouri-Kansas City. Jointly posted with New Economic Perspectives
One of Governor Romney’s criticisms of President Obama is that he “takes his political inspiration from Europe….”
Romney never gives specifics on this criticism. The irony is that Romney (and Representative Ryan) “takes his political inspiration from Europe” and that the European policies they embrace have already proven disastrous in Europe. Here are five examples:
1. Austerity. European austerity has promptly forced the Eurozone back into recession. Romney, channeling Germany’s Prime Minister Merkel, claims that deficits are “immoral” and must be ended. Austerity is pro-cyclical policy that makes recessions far more severe. It has pushed several European nations into Great Depression levels of unemployment, which has reduced income and tax revenues and increased budget deficits. The EU’s Stability and Growth Pact (an oxymoron designed by regular morons) produces instability and negative growth by banning EU nations from using effective counter-cyclical fiscal policies that have proven successful for decades in reducing the severity and length of recessions.
2. Slashing working class wages. Ryan is an implacable opponent of unions and wants to end the minimum wage. Merkel is demanding the repeal of European laws protecting workers and is coercing the periphery to reduce working class wages. Unemployment rates are roughly 25% in Spain and Greece and the unemployment rate for the young is nearly 50%. The old sick joke is true again in Ireland – its leading export is the Irish. Real wages in Europe has fallen and unemployment has increased sharply.
3. Ryan wants to remove the Federal Reserve’s statutory mandate to seek full employment consistent with price stability and have it subject to a solitary mandate to maintain price stability. That mimics the disastrous single mandate of the European Central Bank (ECB). The ECB lacks the legal authority to help the nations of Europe respond to the worst economic catastrophe since the devastation caused by World War II. It is an insane policy. The ECB’s crippled mandate meant that our Federal Reserve had to intervene in Europe to save several European Central Banks from collapse, which could have led to a global depression. Ryan wants to adopt a European policy that has proven grotesquely self-destructive.
4. Romney wants to end any vigorous financial regulation. He is inspired by the now infamous European “lite touch” regulation. The United Kingdom (UK) epitomized lite touch regulation. The failure of most of the UK’s largest banks, the Libor, HSBC, and Standard Chartered scandals and the allegedly rogue operation of JPMorgan’s Chief Investment Office in the City of London constitute a record of failure and scandal without equal. Romney and Ryan oppose any serious regulation of banking and call for the immediate repeal of the Dodd-Frank Act in its entirety and the re-adoption of European-style “lite touch” regulation.
5. Romney’s lead economic advisor, N. Gregory Mankiw, continues to champion the regulatory “competition in laxity” that produced the “race to the bottom” that simultaneously destroyed effective financial regulation throughout the developed world. This perverse dynamic has created the criminogenic environments that drive our recurrent, intensifying financial crises. Mankiw is pushing the “need” for the U.S. to win that race to the bottom against the City of London. The only way to “win” a race to the bottom is to refuse to race, but Mankiw takes his policy inspiration from Europe and the City of London. Mankiw’s advice has caused Romney to ignore the recurrent disasters and the warnings of effective regulators, economists, and white-collar criminologists that his European-inspired anti-regulatory policies are criminogenic.
The truth is that Europe has some excellent and some terrible economic policies. Romney and Ryan have shown an unerring talent for embracing Europe’s worst financial policies and denigrating its best policies. What is amazing is that no matter how badly the European policies fail, Romney and Ryan ignore the failures and promise to drag us down the path to inevitable failure. Romney and Ryan complain about unemployment in the U.S. while pushing Europe’s austerity policies that would massively increase unemployment, debt, and deficits in the United States.