Phony growth, or phony austerity? Pick your poison.
Europe鈥檚 austerity policies nor America鈥檚 growth policies have worked. In Europe, governments collectively spent 44.8% of GDP in 2000. Today it is 49.2%. That鈥檚 not austerity, that鈥檚 stimulus, according to Bill Bonner.
French President Francois Hollande gestures during a news conference with Italian Prime Minister Mario Monti at Chigi palace in Rome in this June 2012 file photo. Hollande says he will hire more government workers and spend more money to promote growth, but Bill Bonner is not sure that strategy will be very effective.
Max Rossi/Reuters
How about real austerity? Real growth?
Today, we introduce a new twist on these Daily Reckoning remarks鈥� The new approach is that we are going to write less. Yes鈥e promise! Long term Daily Reckoning sufferers have heard this before. But this time, we really mean it. Honest injun.
And to prove we are serious, we鈥檙e keeping today鈥檚 comments to just two pages鈥nd only one subject. An old one.
We live in a world of frauds and counterfeits鈥unkum and claptrap鈥�
That鈥檚 what makes it so much fun! It brings tears to our eyes one day鈥nd seizures of laughter the next. So many imposters鈥o little time.
As you know, neither Europe鈥檚 austerity policies nor America鈥檚 growth policies have worked. Why? Because they are both phony.
In Europe, governments collectively spent 44.8% of GDP in 2000. Today it is 49.2%. A big increase. That鈥檚 not austerity鈥hat鈥檚 stimulus. The Europeans are letting out their belts, not cinching them up.
And now that the phony austerity is not working, a new batch of leaders wants to try something new 鈥� phony growth. Francois Hollande, France鈥檚 new president, says he will hire more government workers and spend more money to promote 鈥済rowth.鈥� He also says he鈥檒l raise taxes on the rich to 75% of marginal income (up from 41% now) and increase the 鈥渨ealth tax.鈥� How he thinks you get real growth out of this foul mixture is a mystery. The government already directs and consumes half the nation鈥檚 output鈥nd the economy is flat. How will it do better with more money? Instead, the French will be wasting resources鈥queezing the most productive part of the economy鈥nd getting poorer.
Meanwhile, the US has stuck to its phony growth policies. The feds run huge deficits to 鈥榮timulate鈥� the economy.
(Reuters) 鈥� The government posted a budget deficit of $125 billion in May, more than twice the level registered in the same month last year.
The May deficit, which was close to analyst forecasts, followed a rare month of surplus in April that was due to higher budget receipts during tax season but also other temporary factors.
So far this fiscal year, the budget deficit stands at $844.5 billion, narrower than at the same time a year ago.
Under the government鈥檚 accounting system, October is the opening month of fiscal 2012. During fiscal 2011 which ended September 30, the budget deficit totaled $1.296 trillion.
We saw yesterday where all that money has gotten us. Nowhere. Family wealth has dropped back to levels of 20 years ago.
But wait鈥aybe it鈥檚 not the feds鈥� fault. While the Europeans pretend to cut back, maybe America鈥檚 stimulus program is a fraud too. That鈥檚 what a pair of professors at Yale claim. This 鈥榬ecovery鈥� is different from previous recoveries, they believe, because the US is following a 鈥渉idden austerity program:鈥�
鈥here is something historically different about this recession and its aftermath: in the past, local government employment has been almost recession-proof. This time it鈥檚 not. Going back as long as the data have been collected (1955), with the one exception of the 1981 recession, local government employment continued to grow almost every month regardless of what the economy threw at it. But since the latest recession began, local government employment has fallen by 3 percent, and is still falling. In the equivalent period following the 1990 and 2001 recessions, local government employment grew 7.7 and 5.2 percent. Even following the 1981 recession, by this stage local government employment was up by 1.4 percent.
Without this hidden austerity program, the economy would look very different. If state and local governments had followed the pattern of the previous two recessions, they would have added 1.4 million to 1.9 million jobs and overall unemployment would be 7.0 to 7.3 percent instead of 8.2 percent.
So, dear reader, pick your poison. Phony growth? Or phony austerity? Neither works. What does work? What would turn this economy around鈥nd put it back on the road to real growth? We鈥檒l tell you next week. We鈥檙e out of space for today.
Regards,
Bill Bonner,
听蹿辞谤 The Daily Reckoning