Skip to main content

Europe's economic depression has now lasted longer than the Great Depression of the 1930s. Meanwhile, America's "Great Recession" also drags on thanks to cutbacks in government spending since the stimulus.

Europe's leaders somehow were convinced that austerity --“ "deficit reduction" through cutbacks in government --“ would somehow lead them out of their economic doldrums. They believed that taking money out of the economy would help the economy. The result has been terrible. The Washington Post's Wonkblog calls Europe's austerity-lengthened depression "one of the biggest catastrophes in economic history."

To top it off, Europe's governments are learning that cutting back on spending not only worsens the economic picture, causing terrible unemployment, poverty and human misery, but the worsened economic picture means less revenue coming in, thereby increasing deficits instead of lowering deficits. In other words, austerity cutbacks to fight deficits have instead made deficits worse and hurt people.

Europe's Policy-Driven Depression

In "Worse than the 1930s: Europe'™s recession is really a depression," Matt O'Brien writes,

It's a policy-induced disaster. Too much fiscal austerity and too little monetary stimulus have crippled growth like almost never before. Europe is doing worse than Japan during its "lost decade," worse than the sterling bloc during the Great Depression, and barely better than the gold bloc then -- ”though even that silver lining isn't much of one. That's because, at this rate, it'll only be another year until the eurozone is well behind the gold bloc, too.

In Wonkblog's chart, the black line shows Europe's negative GDP doldrums since 2007.

The harmful effect of austerity is so obvious that even Europe's policymakers are starting to get it.  The New York Times, in "France Acknowledges Economic Malaise, Blaming Austerity," reports that, "President Francois Hollande on Wednesday ... indicated that the austerity policies France had been compelled to adopt to meet the eurozone'™s budget deficit targets were making growth impossible."

"The diagnosis is clear," Mr. Hollande said in an interview published Wednesday in the French daily Le Monde. "œDue to the austerity policies of the last several years, there is a problem of demand throughout Europe, and a growth rate that is not reducing employment."

It was the most public rejection by France of the austerity medicine that Germany has long prescribed for the eurozone --” which even the German chancellor, Angela Merkel, recently acknowledged might be impeding the currency bloc's recovery.

(Click here for a Businessweek/Bloomberg video in which Economist Joseph Stiglitz explains why Europe's austerity has been a "dismal failure" and needs a change of approach.)

Demand Drives An Economy

Here's the deal. In a slowdown consumers and businesses are not bringing enough "demand" to an economy. This lack of customers causes businesses to lay off workers and those workers stop being consumers, so businesses have to cut back even more. So they lay off workers and those workers stop being consumers, so businesses have to cut back even more. You get the picture: "Death spiral."

This is when government (We the People) should step in. In the 20th century we learned a way out of recessions and depressions. During slowdowns government can spend, and this boosts the demand in the economy to make up for the demand shortfall from consumers and businesses. Government can invest in infrastructure, causing construction workers to be hired and suppliers of equipment and materials to thrive. Government can spend on things it needs like equipment and cars, etc. Government can hire to get things done that need to be done like teaching kids, daycare, adding police and firefighters ... so many things.

And all of those thing help make the lives of We the People better in the long run. Good, modern infrastructure, schools and teachers, universities, police, firefighters, parks, libraries, courts, scientific research, environmental protection, food inspectors, job-safety inspectors and all the rest of the things government does make our lives better --“ and boost our economy in the long term.

Stimulus Helped The U.S. Economy, Deficit-Cutting Hurt

Just after President Obama took office there were enough Democrats in the House and Senate to pass the "stimulus." This was the result:

Unfortunately Republicans gained seats in the Senate and have filibustered every single attempt to help the economy since. The post Three Updated Charts to Email to Your Right-Wing Brother-In-Law explains how this has hurt us,

Government spending does not take money out of the economy." In fact it puts money into the economy, creates jobs and lays the foundation for future prosperity. ... this chart from The Atlantic, "œThe Incredible Shrinking U.S. Government," shows how government spending to create government jobs helped us get out of the 1981, 1990 and 2001 recessions. But since the 2007 "œGreat Recession," we instead have laid off hundreds of thousands of government employees, obviously making unemployment even worse.

... This chart from Roger Hickey'™s post,Continued Jobs Growth. But Highway Bill Shows Austerity Still Hurts., shows how "œconservative budget cutting has undermined growth from mid-2010 through 2014":

"œAs you can see, the impact of austerity on the economy is projected to be reduced over the next two quarters, but the next budget is not expected to be expansionary --“ and Republicans are still writing budgets under the mistaken conservative theory that spending cuts somehow stimulate growth."
Government spending obviously helps boost a flagging economy. Cutting government spending during a slowdown obviously takes badly needed money out of the economy at the very times it needs the help.

Some Believe Government Is Bad And "Markets" Should Make The Decisions

There are those who think that it is wrong for government (We the People) to be able to do things like this, and these decisions should be left to "the market." They want "limited government" and demand that government get "out of the way" of "the market" --“ i.e. those with money --“ and let the big corporations and the billionaires behind them make the decisions, not We the People.

Terms like "the market" and "free enterprise" is modern wording applied to the age-old fight between those who already have great wealth and power, and regular people who are powerless unless they are able to band together in democracy to protect each other from the power of the wealthy.

The thing is, the "private sector" is the very sector that is in a downward spiral during slowdowns. Without an outside force --“ government --“ stepping in to boost demand there is nothing to interrupt the downward spiral. "Austerity" cutbacks in government literally take money out of the economy. Austerity cuts back on maintaining the infrastructure and teachers and police and firefighters and construction workers and scientific research --“ all at the very time that businesses are also laying people off.

We have seen this in the United State because of budget cuts forced by Republicans --“ especially the "sequester" forced by the debt-ceiling standoff. But in Europe, the austerity has been much worse than here, and the result have been much more devastating to Europe's economy and people.

We can only hope that Europe's leaders are starting to get it that taking money out of the economy takes money out of the economy.


This post originally appeared at Campaign for America's Future (CAF) at their Blog for OurFuture. I am a Fellow with CAF.  Sign up here for the CAF daily summary and/or for the Progress Breakfast.

Your Email has been sent.
You must add at least one tag to this diary before publishing it.

Add keywords that describe this diary. Separate multiple keywords with commas.
Tagging tips - Search For Tags - Browse For Tags


More Tagging tips:

A tag is a way to search for this diary. If someone is searching for "Barack Obama," is this a diary they'd be trying to find?

Use a person's full name, without any title. Senator Obama may become President Obama, and Michelle Obama might run for office.

If your diary covers an election or elected official, use election tags, which are generally the state abbreviation followed by the office. CA-01 is the first district House seat. CA-Sen covers both senate races. NY-GOV covers the New York governor's race.

Tags do not compound: that is, "education reform" is a completely different tag from "education". A tag like "reform" alone is probably not meaningful.

Consider if one or more of these tags fits your diary: Civil Rights, Community, Congress, Culture, Economy, Education, Elections, Energy, Environment, Health Care, International, Labor, Law, Media, Meta, National Security, Science, Transportation, or White House. If your diary is specific to a state, consider adding the state (California, Texas, etc). Keep in mind, though, that there are many wonderful and important diaries that don't fit in any of these tags. Don't worry if yours doesn't.

You can add a private note to this diary when hotlisting it:
Are you sure you want to remove this diary from your hotlist?
Are you sure you want to remove your recommendation? You can only recommend a diary once, so you will not be able to re-recommend it afterwards.
Rescue this diary, and add a note:
Are you sure you want to remove this diary from Rescue?
Choose where to republish this diary. The diary will be added to the queue for that group. Publish it from the queue to make it appear.

You must be a member of a group to use this feature.

Add a quick update to your diary without changing the diary itself:
Are you sure you want to remove this diary?
(The diary will be removed from the site and returned to your drafts for further editing.)
(The diary will be removed.)
Are you sure you want to save these changes to the published diary?

Comment Preferences

  •  Conservatives tend to muck things up for everyone. (6+ / 0-)

    "We the People of the United States...." -U.S. Constitution

    by elwior on Sat Aug 23, 2014 at 08:34:56 AM PDT

  •  We had a V-shape recovery... (2+ / 0-)
    Recommended by:
    Lily O Lady, Situational Lefty

    with a modest Stimulus and come Nov. if we lose the Senate we'll get nonstop austerity chirping. It's frightening how stupid this country can be at times.

  •  Austerity worked in the UK (0+ / 0-)

    Their economy is booming. They followed the Clinton model--cut spending, raise taxes, and follow it with government investment. It always works and it reduces the deficit. Wish we had done that again.

  •  My cat (0+ / 0-)

    commented "duh" when I read this article to her.

  •  The first chart, Europe's Greatest Depression, (0+ / 0-)

    depicts the Eurozone's economy from 2007 to 2014 as a heavy black line that isn't trending upward.

    A reader might assume that the red, gray, and yellow lines represent the Eurozone's recovery from earlier recessions but they don't. The red line represents Japan's recovery after 1992. The others don't correspond to the Eurozone either.

    The Eurozone is the 18 countries that use the Euro as their currency. The European Union includes the 18 Eurozone countries and 10 others that chose to keep their own national currency instead of converting to the Euro.

    In the last GDP report, the EU grew slightly faster than the Eurozone, but neither one is in a recession, much less a depression. A recession is defined as two consecutive quarters of economic contraction. This is not the case.

  •  I really hate to state the obvious, but really.. (2+ / 0-)
    Recommended by:
    Major Kong, Situational Lefty

    It does take money in any economy for people to make money, and that applies to economies where if you don't have it to spend, then everybody looses out.  There will never be a perfect economic model, but the austerity one is far from perfect to start out with.  In fact, it's right up there with that "Trickle Down" BS we have been fed (and still are).  

    This isn't economic rocket science.  I firmly believe that this austerity crap was implemented by governments on their citizens on purpose for other nefarious reasons, and agendas.

    Paging Goldman Sachs, party of one......  Your greedy and self serving enrichment, economic country busting table is ready!

    “My soul is from elsewhere, I'm sure of that, and I intend to end up there." - Rumi

    by LamontCranston on Sat Aug 23, 2014 at 11:26:41 AM PDT

    •  The financial crises in Greece and Spain make more (0+ / 0-)

      sense if you consider the legacy they had from decades of repressive rightwing dictatorships that lasted until 1975.
      Those rightwingers stuck around when more democratic politics took hold and they operate just like rightwingers in the US. The typical Greek politician was something like a Romney with politics as a family business, handed down through generations, extreme wealth, and tax evasion. Underneath, the accounting that validated Greece's qualifications for EU membership was fraudulent. When the shit hit the fan, Greece could no longer borrow because no one would lend, unless sky high interest rates were attached to compensate for the risk of default. The sudden spike in interest rates led to a catastrophic economic collapse.

      What's frightening about this is the Republicans' obsession with re-creating this crisis in the US by capping the debt limit. They saw what happened when Greece could no longer borrow and thought they could impose the same constraint here legislatively. That's how perverse they are.

      Greece couldn't dig itself out without its own currency and central bank to conduct monetary policy. The European Central Bank should have acted on Greece's behalf instead of ordering austerity. It was only this year, that the Troika (policy makers) finally admitted the damage they caused and started reformulating policy to copy the American model. As much as we complain about conditions here, it looks like an economic miracle from the EU side.

      And as you pointed out, it depends on flushing money from the government into the hands of people who will spend for its success.

      •  Oh, but Goldman Sachs played a huge roll when (0+ / 0-)

        working with corrupt politicians on converting the currency over to the Euro, and fudging the numbers to allow for that underprepared country to join the E.U.

        That was my main thought when I referenced GS in my post.

        “My soul is from elsewhere, I'm sure of that, and I intend to end up there." - Rumi

        by LamontCranston on Sat Aug 23, 2014 at 03:15:14 PM PDT

        [ Parent ]

  •  The answer must be........more austerity! (1+ / 0-)
    Recommended by:
    Situational Lefty

    It's like a religion. They just know this stuff has to work.

    If the pilot's good, see, I mean if he's reeeally sharp, he can barrel that baby in so low... oh you oughta see it sometime. It's a sight. A big plane like a '52... varrrooom! Its jet exhaust... frying chickens in the barnyard!

    by Major Kong on Sat Aug 23, 2014 at 11:33:33 AM PDT

  •  Still, I'd take the unknown ending to the current (0+ / 0-)

    ...European recession to the known ending of the 1930s one.  

    It's not the side effects of the cocaine/I'm thinking that it must be love

    by Rich in PA on Sat Aug 23, 2014 at 11:36:02 AM PDT

  •  Austerity policies have nothing to do with (4+ / 0-)

    restoring economies. They are simply a means to squeeze the people for what little they have left and transfer it to the deepest and darkest strongholds of real wealth. The bigger the hedge fund, the better its returns from these catastrophic policies.

    •  I agree that austerity (0+ / 0-)

      policies have nothing to do with restoring economies. It seems that the RW views the economic hardship as a mandate for government to do something and austerity is simply one option that is easy to sell ... just like a family must tighten its belt during economic hard times, so must government.

      The fallacy in that argument is that family finances are completely different from national or regional economies and the remedy that works on the micro scale doesn't necessarily work on the macro scale (families have a much more difficult time borrowing money during an economic downturn than does the state). It seems to me that the moneyed class sees the economic downturn as a means to further starve the beast and reduce the size of government. With fewer regulators on the job it becomes easier for big business to side step or ignore environmental and consumer protections, to name just two examples.

      This policy can also shift many government functions, such as crafting legislation, from long-term government bureaucrats with valuable institutional memory to the private sector where the hands of big business can work unnoticed behind the scenes, thus giving big business undue influence.

      Alcohol preserves everything ... except secrets.

      by august88 on Sun Aug 24, 2014 at 11:50:04 AM PDT

      [ Parent ]

  •  It's the Republican way. (2+ / 0-)
    Recommended by:
    Situational Lefty, august88

    You can generate a lot of cheap labor by turning the US and European Union members into third world countries.

  •  ...a simple solution is... (0+ / 0-)

    ...whatever the Republicans recommend on the the direct opposite...success is guaranteed!!!

Subscribe or Donate to support Daily Kos.

Click here for the mobile view of the site