European Austerity vs. 'Growth' and the Real Problem

In the last few days, various economists and experts have been quoted declaring "Austerity in Europe has failed." For some examples of this see the following on CNBC:
Spain Downgrade Proof Austerity Not Working
Published: Friday, 27 Apr 2012

The problem with this argument is that neither "austerity" nor "stimulus" will help Europe recover until the real problem with the EU national economies can be addressed: they are anti-business, anti-innovation, and anti-growth.

You can spend all the money (stimulus) imaginable, but if national policies dissuade or punish private innovation and job creation, the stimulus cannot and will not create permanent growth. When the stimulus ends, job losses and declines will resume.

Likewise, you cannot cut (austerity) your way to prosperity if you do nothing to revitalize industry and job creation. Cutting government is good, but pointless if you aren't also encouraging business investment and lasting employment policies.

The debate over European policies is absurd because no one is talking about solving the business and innovation deficits of the EU.

According to the Wall Street Journal:
Greece ranks 100th on the World Bank's most recent rankings of "ease of doing business"—right behind Yemen.
— The Chaos of Greece: What happens to countries that choose economic decline. February 14, 2012.
As a result of anti-business policies, the employer of last (only) resort throughout much of Europe is government. This leads to a situation in which only stimulus spending, and more national debt, can create jobs. But, eventually, that money will run dry. Because these same governments have been anti-business, there will be a total economic meltdown.

Small and medium business should be the backbone of an economy. When you have decimated the "moderately wealthy" with a mix of horrible policies and anti-wealth propaganda, there's little hope for self-sustained economic growth.

Austerity, likewise, is going to be disastrous without labor reforms, for many of the same reasons stimulus will (or would) fail.

Progressives will claim austerity failed, which is why we should still pursue stimulus in the United States. The problem with that argument is that stimulus couldn't work long-term in Europe, either.

Labor reform is key to growth in Europe and the United States. Without a fluid labor market able to change and evolve, no economy can recover and sustain itself. Unfortunately, labor is likely to respond to the economic downturn with calls for more protections, more anti-business policies, and more disastrous results.


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