After more than a year of aggressive budget cutting by European governments, an economic slowdown on the continent is confronting policymakers from Madrid to Frankfurt with an uncomfortable question: Have they been addressing the wrong problem?



The campaign to reduce government deficits has come in response to a European debt crisis that could endanger the global banking system. And the budget cutting has been coupled with a reluctance by the European Central Bank to stimulate economic growth like the Federal Reserve has in the United States; the ECB has instead raised interest rates twice this year to contain inflation.



Those steps have sucked hundreds of billions of dollars out of a European economy that may be edging towards recession.



Such a downturn, by choking off government revenues and increasing the demand for public services, could put struggling countries such as Spain and Italy at risk of missing the very deficit-reduction targets that budget cuts and other austerity measures were meant to achieve.



In the United States, political and economic leaders are facing the similar dilemma of how to rein in the massive federal debt by enacting deep and immediate spending cuts without undermining already anemic economic growth.



...In Spain, for instance, where the parliament this week is voting to place constitutional limits on government deficits in a bid to reassure global investors, some analysts say the country is taking the wrong medicine. Spain’s debt level remains lower than even that of Germany, the continent’s strongest economy and one of the world’s benchmark credit risks. But Spain’s unemployment rate is more than double that of the United States, and some economists say the country needs a healthy dose of policies to restore growth, not constrain it.



The International Monetary Fund, which has generally encouraged “fiscal consolidation” in euro-zone countries, has noted that budget cutting undermines growth and employment. The impact is even more pronounced if many countries are cutting at once and central bank policies are not geared toward growth-- just the path Europe is following, according to the IMF.



With the euro-zone economy slowing and governments aggressively cutting, the ECB may need to concede its rate increases and tight money were a mistake, Peter Vanden Houte, an analyst at ING, wrote Wednesday in a research note. “Loose monetary policy seems to be the only medicine left to prevent a painful fall back into recession,” he said.



Recent statistics showed that the combined economy of euro-zone countries nearly stalled from April through July, with growth of just 0.2 percent. Germany’s economy, one of the main props of the region, grew just 0.1 percent. Analysts project Spain’s annual growth at about 0.7 percent for the year, far below prior government estimates of 2.3 percent. That may force a choice: further belt-tightening, or missing the deficit targets that international markets now expect.

Liberal House Democrats are pressuring President Obama to ignore his conservative critics and take "bold action" to tackle the lingering jobs crisis.



Reps. Raúl Grijalva (D-Ariz.) and Keith Ellison (D-Minn.)-- the co-chairs of the Congressional Progressive Caucus-- want the president to champion sweeping investments in the nation's crumbling infrastructure as a way to create jobs and jolt the sluggish economy.



"With 14 million Americans still looking for work, this is not the time to tinker around the edges," the lawmakers wrote to Obama Thursday. "We must take bold action, and that requires federal emergency jobs legislation."



...Specifically, Grijalva and Ellison are urging Obama to promote a national infrastructure bank, a public-private partnership designed to fund the nation's aging roads, bridges, railways and other vital structures. That proposal, championed by Rep. Rosa DeLauro (D-Conn.), is part of the Make it in America agenda being pushed by House Democrats this year.



"The country’s infrastructure needs an estimated investment of $2.2 trillion," Grijalva and Ellison wrote. "We should not delay these crucial investments, especially while millions of Americans are out of work. Rebuilding America-- without creating expensive new corporate tax loopholes-- will further boost our economy and create badly needed jobs."



Such a plan would have a tough road ahead, however, as the majority House Republicans are opposed to new stimulus spending as a way to inject life in the limping economy. Instead, GOP leaders want to cut taxes, slash spending and scale back regulations they say have prevented businesses from hiring new workers.

"Manufacturing, once a bright spot for job creation, has stalled. Unless our nation adopts an aggressive manufacturing strategy our industrial sector and millions of workers will get left behind. The American people want Washington to focus on manufacturing jobs, but Washington still isn’t listening.



"Last month we proposed some bipartisan, concrete steps to create jobs-- both now and in the long run-- in the most productive sector of the economy, manufacturing:



• Establish a national infrastructure bank to leverage capital for large-scale transportation and energy projects.



• Reshape the tax code in a revenue neutral way to provide incentives for job creation and inward investment. R&D tax credits should help firms that not only innovate in America but also make their products here. Lower tax rates for manufacturing activity in America and eliminate tax shelters for hedge funds or financial transactions that have no real value.



• Apply "buy America" provisions to all federal spending to ensure that American workers and businesses get the first shot at procurement contracts. (Nothing says "please steal our jobs" like using subsidized Chinese steel in construction projects.)



• Shift some education investment to rebuilding our vocational and technical skills program, which would address looming shortages in the manufacturing sector.



• Refocus the trade agenda by giving American businesses new tools to counter China's currency manipulation, industrial subsidies, intellectual property theft and barriers to market access.



• Condition new federal loan guarantees for energy projects on the utilization of domestic supply chains for construction.



"Focusing on manufacturing will also lower our trade deficit which will make it easier for America to pay its bills. There is plenty that President Obama could do on his own right now without congressional approval:



• Expedite small business loans through the Small Business Administration and Treasury Department to help firms expand, retool and hire.



• Convene a multilateral meeting to address global imbalances and in particular Chinese mercantilism. If China doesn't agree to participate, designate it a currency manipulator. (China ships fully one-third of its exports to the U.S. and finances less than 10 percent of our public debt, so we have more leverage than some might suggest.)



• On the heels of the landmark agreement with automakers on fuel economy standards, secure an additional agreement from all foreign and domestic car companies to increase their levels of domestic content by at least 10 percent over the next three years.



• Direct the Department of Defense to leverage existing procurement to contractors that commit to increasing their domestic content of our military equipment, technology and supplies.



• Approve additional applications for renewable and traditional energy projects, contingent on the use of American materials in construction.



• Kick any CEO off of federal advisory boards or jobs councils who has: (1) not created net new American jobs over the past five years, or (2) is expanding the company's foreign workforce at a faster rate than its domestic workforce. Replace them with CEOs who are committed to investing in America.



"Many of these steps are commonsense ways to refocus existing federal programs, policies, and investment on what we sorely need the most right now: job creation. Of course, there are major investments in infrastructure, innovation and education that must be bolstered to prepare America for global competition and provide sustained job growth. If the recommendations of the "supercommittee" fail to include these investments, Congress truly will be dooming the next generation to a lower standard of living.



"Congress, please get to work. Mr. President, please do the same. Stop blaming each other and do your jobs. Otherwise, you might all be looking for work after next November."

The U.S. has the lowest tax rates since I was a child-- when Eisenhower was president and the rich paid their fair share. The decrease in taxation on the wealthy and the rise in their power and their aggregate share of the nation's wealth has been, naturally enough, accompanied by a catastrophe for ordinary working families and the country is now stuck in a severe economic decline. This is being further accelerated by the worldwide Austerity regime being shoved down everyone's throats by the ruling elites. It's a regime that is destroying employment in the U.S. and Europe, threatening social cohesion and undermining democracy itself.Yesterday's employment numbers-- 17,000 private sector jobs created, 17,000 government jobs eliminated-- are just more of the same from Republicans determined to destroy the economy for partisan gain... and a weak and conflicted Democratic president unwilling or unable to fight back against the biggest threat the nation faces-- a fascist Republican Party willing to do anything to win power.As thereported yesterday, the same kind of Austerity our ruling elites are forcing on the country, is destroying Europe's recovery In the U.S., conservative governors-- you're absolutely NOT allowed to call them fascists -- have been cutting public sector jobs as fast as the private sector creates new ones. And nationally, the GOP-controlled Congress has worked diligently to wreck every proposal that's come along to ameliorate the unemployment situation. Looking at the trend all year, Matty Yglesias cut right to the chase over at ThinkProgress : "The public sector has been steadily shrinking. According to the conservative theory of the economy, when the public sector shrinks that should super-charge the private sector. What’s happened in the real world has been that public sector shrinkage has simply been paired with anemic private sector growth. This is what I’ve called 'The Conservative Recovery.' Conservatives complain about the results because the President is a Democrat named Barack Obama. But the policy result is what conservatives say they want. Steady cuts to the government sector, offset somewhat by private sector growth. The reality is that this dynamic sucks, and we ought to be forcefully trying to avoid public sector layoffs knowing that workers are also customers for the private sector. But we’re not."No one ever accused Pimco's Bill Gross, manager of the world’s biggest bond fund, of being a dirty fucking hippie. But he told reporters yesterday that "Governments should be focusing on creating growth rather than reducing debt. To do it right now is almost suicidal." Bohner and Cantor are eager for that suicidal thing-- it's not their suicide-- but will Obama pay attention? No reason to think he will. New polling shows that the people who elected Obama in 2008, want him to break free of this Austerity bullshit and do what they elected him to do. When it comes to his jobs speech next week by a five to one ratio they want the him to lay out a broad plan for creating jobs and hold Republicans accountable if they block the legislation-- as opposed to him proposing smaller measures that Republicans will probably just oppose anyway-- like they do whatever he supports. And by a five to two ratio these same Obama voters want him to close corporate tax loopholes rather than offer tax breaks to corporations. Overwhelmingly, Obama voters say closing corporate tax loopholes and raising taxes on the wealthy would make them more likely to support Obama's 2012 re-election. Wednesdayreported on the Progressive Caucus' pressure on Obama to follow this path.Immediately after the dismal jobs report was released Friday morning Scott Paul, Executive Director of the Alliance for American Manufacturing laid out an aggressive plan for both parties to get the country back on the right path.

Labels: austerity, unemployment