Sunday, May 20, 2012

Republicans Want the U. S. to Emulate Italy and Britain – And Paul Krugman’s Chart Shows the Idiocy of Such a Policy

Mitt Romney and Friends Can’t Wait to Make the U. S. More Like Europe

Thanks to Paul Krugman and his recent post once again trying to explain rational economic policy to the irrational, we have this graph.


Now without knowing anything else, which of those countries would you want to be?

The negative numbers for Italy and Britain are the direct result of their economic policies and austerity, primarily the huge cuts in government spending and government employment.  If one added Spain, Portugal, Ireland and Greece to the chart all would show the same result, since all have followed the same policy.

But wait, what about GermanyHasn’t Germany followed a policy of austerity and put balancing its budget ahead of everything else?  Yes that is the case, but Germany is a special situation.  The German economy is heavily export dominated, and a large trade surplus acts just like a government deficit in stimulating the economy.  So Germany can have contractionary fiscal policy because they have exports greater than imports. 

But guess what, not every country can do this.  If Germany sells more to Spain then Spain sells to Germany, then it is impossible for Spain to sell more to Germany than Germany sells to Spain.  (think about it) Yes that is the most simple logic there is, but it apparently is lost on policy makers.

As for Japan, Mr. Krugman explains things this way.

Wait, what? Japan as star performer? What’s that about?

Actually, no mystery. From Bloomberg:

Japan’s economy expanded faster than estimated in the first quarter, boosted by reconstruction spending that’s poised to fade just as a worsening in Europe’s crisis threatens to curtail export demand.

So Japan, which is spending heavily for post-tsunami reconstruction, is growing quite fast, while Italy, which is imposing austerity measures, is shrinking almost equally fast.

There seems to be some kind of lesson here about macroeconomics, but I can’t quite put my finger on it …

And as for the future of the U. S., if as expected Republicans take control after the November elections look for the U. S. to move closer to Italy and Britain.  And just like in Britain, expect Conservatives to deny that their policy is anything but the right one and must be continued.

Just thought everyone would like a preview of 2013 and beyond. 

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