José Manuel Barroso, president of the European Commission, at the European Development Days in Brussels, October 16, 2012. (Flickr/EU Humanitarian Aid and Civil Protection)
In the past week, political officials and economic experts in several countries have indicated they believe austerity is not, and indeed never has been, the answer to pulling the world’s economies out of recession. First, everyone found out Paul Ryan is super bad at math (shocker). As it turns out, the paper the House Budget Committee chairman has been using to make the case for austerity was discredited after it became known that essential data was excluded from the study, leading to “serious errors that inaccurately represent the relationship between public debt and growth.”
The Harvard professors who produced the paper have acknowledged their grave error.
Of course, Ryan’s quest for austerity was never really about accurate figures or projections. His was an ideological battle that might as well have been waged by plucking random numbers from the ether for all that “facts” actually figured into the debate. The people at the bottom rungs of our society know austerity doesn’t work. They’ve known that for years. After all, it is the people relying on public services like schools who see the direct impact of austerity in their day-to-day lives.
However, it seems as though at least some societal elites are finally waking up to the fact that budget cuts don’t work during recession.
Bill Gross, manager of the world’s largest bond fund for Pimco, and widely considered one of the most influential voices in the bond market, launched a harsh attack on the euro zone’s severe austerity measures.
“The UK and almost all of Europe have erred in terms of believing that austerity, fiscal austerity in the short term, is the way to produce real growth. It is not,” Mr Gross told the Financial Times. “You’ve got to spend money.”
This week, European Commission President José Manuel Barroso said the bloc should place a greater emphasis on policies that stimulate growth in the short term and less on cutting government spending. As The Wall Street Journal reports, Barroso’s statement is only the latest in a series of public statements that indicate a “shift in European economic policy is under way.”
The International Monetary Fund last week point-blank said the bloc should ease back on austerity, while a number of governments outside the EU have already made that call, noting budget cuts are hindering economic recovery. Spanish Finance Minister Luis de Guindos said over the weekend that his country’s new budget plans that will be presented later this week will emphasize economic growth and reduce spending cuts.