Special to The Sun
Rising debts amidst a slumping economy spur leaders to aggressively reduce budget deficits. For congressional Republicans, this is apparently their ideal economic policy. For Spain, it’s what they have lived through for the past two years and they are much worse off for it.
In November 2011 with an unemployment rate exceeding 20 percent and a government budget deficit above 8 percent of GDP, Mariano Rajoy became Spain’s prime minister with the promise to enact an “austerity” program to slash the deficit. Following through on that promise, Rajoy ushered through significant government spending cuts and tax increases and has successfully reduced the budget deficit in half in just two years. Unfortunately for the Spanish people, it has come at a heavy price.
Since Prime Minister Rajoy’s austerity program has been implemented, the Spanish economy, which had grown in five of the six quarters immediately prior to Rajoy’s election, has now contracted for five consecutive quarters. This week the country announced that its already high unemployment rate has now soared to 27.2 percent with little hope for improvement in the immediate future.
The worsening state of the Spanish economy coupled with Prime Minister Rajoy’s worsening approval numbers, led the prime minister to abruptly ditch his signature austerity program to embrace a pro-growth agenda. In short, Spain has learned that an aggressive contractionary policy actually contracts the economy.
Unfortunately, we have not learned that lesson in the U.S. Here, austerity is still idealized. Here, cuts in government spending are perceived to be the quickest path to prosperity. Here, decades of economic evidence are ignored.
In the U.S. today, the disparity between the fiscal policies advocated by economists and the policies actually implemented by our leaders, has never been greater. Standard economics tells us that in times of high unemployment and low interest rates, the government should spend more — more money to support teacher salaries, more money to invest in infrastructure. Yes, the debt will increase, but with low interest rates the costs will be minimal. It’s much the same as with families who are more likely to take out a mortgage at lower interest rates than at higher ones. Furthermore, the greater spending levels put more money in more people’s pockets helping to further stimulate the economy.
Yet, the current Congress does not ascribe to, or believe in, the economic evidence of the past 80 years. Nor do they believe the reports from their own experts in the Congressional Budget Office. The CBO has estimated that the increased government spending from the 2009 stimulus law increased employment by more than 3.5 million jobs, and that the decline in spending we are seeing now will act as a drag on the national economy. Yet Congress is still intent on forcing more declines in government spending.
Our Congress is following Spain’s economic lead.
We can do better. Congress could act, if they wanted to, to significantly reduce unemployment this year. Congress could act, if they wanted to, to significantly increase economic growth and job creation right now. Congress could act, if they wanted to, to ease the pain of economic hardship being borne by millions of American families.
But they don’t want to.
It appears that Spain has finally learned their lesson. Will we?
MICKEY HEPNER is the dean of the College of Business Administration at the University of Central Oklahoma. Hepner serves on the Executive Committee of the Board of Directors for The Oklahoma Academy.