Wolfgang Grassl sent along his latest comments on the latest embarrassment for the United States:
Roles Reversed: U.S. Defends Budget Deficits, Europeans Want to Save
The full absurdity of economic policy management is brought out by the current debate about how to deal with the enormous government debt that has accumulated on both sides of the Atlantic. Several EU governments, particularly those of Germany and Britain, have embarked on austerity plans to cut public spending.
Chancellor Angela Merkel is determined to reduce debt by $80 billion while Britain’s new coaltion of Conservatives and Liberal Democrats will cut spending by $145 billion by 2015-16.
Several social welfare benefits will be axed in both countries, and Britain, much more burdened by debt than most other European countries, will also raise taxes. Spain has already pushed through a plan to cut spending, and France is considering its own austerity measures.
All of these may well be driven more by concern about credit ratings or the stability of the Euro than by willingness to revert dirigisme, but reigning in public spending is a good thing nonetheless.
But guess who has been trying to spoil these moves in the right direction? Barack Obama sent a letter to G-20 leaders, a week before they will meet in Toronto, urging them not to pay down debt and shrink government budgets. He was concerned about U.S. exports to the EU. His move was understood as being directed mostly at Germany, which has sounder public households than most other G-20 countries, but which bore the major brunt of bailing out Greece.
In addition, thrifty Germans support austerity measures to reduce debt even though it might pile up less than elsewhere. Obama’s plea will therefore not succeed. But it shows how committed his government is to the Keynesian policy of “stimulating” economic growth through public spending.
Americans may continue to achieve higher growth rates of GDP at the expense of higher deficits and stocks of debt, in a show of Potemkin villages designed to disguise deep structural problems in the US economy.
Ludwig von Mises argued that “the long-term public and semipublic credit is a foreign and disturbing element in the structure of a market society” (Human Action, 4th rev. ed., San Francisco 1996, 227). He lauded governments which during the heyday of liberalism paid down their debts.
For European governments to deserve Misesian praise is indeed unusual. For the Obama administration, hower, to surpass them in Keynesian interventionism is shameful and absurd.
Wolfgang Grassl
St. Norbert College
