A steady refrain on this blog is a kind of Protestant guilt trip about deficit spending (see Boomergeddon). We are supposedly responsible for our own lives and destinies and we have failed miserably because we listened to irresponsible liberal dogma from the likes of Barack Obama and we are so covered with government debt that our lives and futures are ruined. Can we be redeemed? Can we be washed in the blood of the lamb?
At least that’s the dogma du jour and it is all over the place from the Teabaggers to the “fair and balanced” coverage of Fox News to, of course, “Boomergeddon” on Bacon’s Rebellion.
Problem is, dogma du jour is often not only wrong, it is short-lived. Consider my experience in 1989. I had been elevated to a middle-level editor at BusinessWeek (back when it was a real magazine) after a tour in the Soviet Union. One of my more droll colleagues took me aside and explained to me: “Look, we cover basically three types of stories here — the Yellow Peril,. Europe 92 and the Death of Communism.”
That summed things up rather neatly. The ruling brass on the 39th floor of the midtown Manhattan skyscraper liked stories shilling that the Japanese were overtaking us, Europeans were right to unify in 1992 and how the USSR and China were doddering. Another dogma we were supposed to follow was cheerleading for the Thatcher-Reagan concepts of globalization which, in their view, was a triumph of muscular Anglo-American decency, capitalism and democracy.
Of course, a lot of this was bunk. The Yellow Peril quickly slunk away after Japan entered a decade of disastrous economic deflation. The Soviet Union did implode but Chinese Communism appears to be stronger than ever. By backing the New York City and academic elites in their globalization theories, we sold out millions of American workers from Danville, Va. to Kannapolis, N.C. to Detroit.
And now, there’s lots of criticism that our feeble economic recovery is endangered by those free-spending Euroweenies who, of course, deserve what they get because they are arrogant socialists!
Maybe but maybe not. Paul Krugman has an interesting column in this morning’s New York Times suggesting that things are a bit more complicated. The problem now is that some of the weaker European economies, notably Spain’s and Greece’s, are tottering and they could drag down the struggling European Union which would put the qui-bosh on our own recovery. That’s one reason the stock market has been jittery recently after a health, nearly-year-long run up.
The Boomergeddon types will, of course, trot out their Sunday church sermons about deficit spending. But Krugman says it’s a bit more complicated than that. His argument? The pressures result from pushing Europe into the 1992 unification and single, Euro currency before it was really ready.
Take Spain. The nation was actually a healthy spender (debt was about 43 percent of GDP) and was chugging along nicely. Then the single currency made it easier for bigger economies such as Germany’s, to take advantage of the sunny, Spanish beaches and invest lots of bubble money into resorts and tapas bars. So, when Germany’s economy hit the wall, it took down Spain’s.
In earlier years, had it been a truly independent country, Spain could have wiggled out of the mess by devaluing its currency. But it can’t set things right because it is tied to the Euro. It can’t affect a change in the Euro’s value as a sovereign nation. Deficits, Krugman argues, have little to do with it.
Bacon and his Baconauts, of course, will retort that Greece, the other villain in this picture, does have a big deficit problem and they are right. But my point is that things are more complicated and simply trotting out that Old Time Deficit Religion has limits. Besides, when you are in the economic dumps, you spend, which is another thing the Baconauts do not understand, but that’s fodder for another post.
Peter Galuszka