The first experiment was here in our country. In the 2000s we went on a tax-cutting spree for the wealthiest Americans, allowed multinational corporations to drastically cut their income taxes through offshore tax havens and other loopholes, and allowed Wall Street to pursue financial gain with little regulation.
All this was done because our federal government bought into the proposition that if we just let the rich and big corporations have more after-tax income and got out of the way of the financial institutions, our nation’s free-market economy would take off and worries about job creation would be a thing of the past.
But instead we had the worst job creation record since 1939 and the birth of the Great Recession that spread around the world.
The Great Recession gave birth to the second experiment in Europe.
Many in the U.S. proposed that the path to recovery required massive cuts in government spending to cut the nation’s deficit in order for the business community to have the confidence to create jobs. Fortunately we mostly went with a government spending stimulus plan (even if it was too little) to grow and save jobs. But while the result has been consistent private sector job growth for over two years, the recovery hasn’t been robust enough possibly because state and local governments chose the austerity path and cut jobs.
In Europe it was a different story. Most nations chose the debt-cutting austerity path to recovery from the Great Recession. They slashed government spending by eliminating jobs and benefits for their citizens.
But businesses did not reward these countries with job creation even with smaller governments and less social programs. What the European countries got instead was less money flowing through their economies and worsening financial conditions. Their citizens turned on their governments and some of the governments have even turned on each other.
We’ve seen street protests and riots over economic conditions. Greece is near bankruptcy and its government is in crisis. France just threw out an incumbent president for the Socialist Party challenger. The economies of Britain, Italy and Spain are not recovering. The stability of the whole European Union and the euro are possibly in jeopardy and fingers are being pointed.With this “improve the economy through austerity”experiment thoroughly failing, the European leaders at Camp David over the weekend shifted gears to support more pro-growth policies. Only Germany still thinks that austerity is still the best medicine but it too has seen the results.
The European countries are finally learning what small businesses instinctively know. Consumer demand is what drives job growth and consumers can’t spend if they don’t have the money. And when job growth is sustained, it produces more government revenue that can eventually be used to deal with the deficit when times are better.
Let’s hope that it’s not too late to turn the economy of Europe around with a growth strategy that has been successful here.
And let’s also hope that the “austerity first/don’t tax the wealthy and big corporations/deregulate Wall Street” politicians here can set their partisanship aside and learn from both of these failed experiments.