Monday, May 21, 2012

Proof 'Stimulus' Won't Save Europe

Stimulus — oh, that's right, we now call it "growth policies — will not save Europe. How do we know? Because the countries in the greatest trouble were spending… and spending and spending some more.
Spare the rod, spoil the child | TribLIVE: Johan Norberg, a senior fellow at the Cato Institute, summarizes the results: "From 1997 to 2007, government expenditures increased by around 6 percent annually in Spain, Portugal and Greece, while population remained mostly stable. Spending increased by 4 percent a year in Italy -- even while the economy shrank." 
Consequently, "Between 2000 and 2010, Portugal increased its public debt as a share of GDP from 49 percent to 93 percent, France from 57 percent to 82 percent, Italy from 109 percent to 118 percent, and Greece from 103 percent to 145 percent," reports Norberg.
How hard is this to figure out? There was no "austerity" even under conservatives in Europe, as I wrote in a previous blog entry. The U.K. and Germany even increased spending, but at a slower rate than most other nations. The "austerity" of France? About $60 billion in new spending over the last two years.

National spending comes from somewhere. Even as debt, that money eventually comes from private industry and individuals. The spending of nations tends to slow economies. Sure, you can stimulate some part of the economy, but at the expense of where private investment might have taken place.

Do we need some stimulus spending in the U.S. and elsewhere? I've long argued that "YES" we could spend on infrastructure and help the overall economy. I've also argued that governments don't seem to know how to spend wisely. Just look at California's wasted money on high speed rail while the state's power grid, water system, and highways crumble.

Spending has not helped Europe and it will not. But, it looks like more spending is ahead. What a mess.

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