All Politics is Global

Late House Speaker Tip O’Neil’s adage that “all politics is local,” while still true, seems to have an inversion that has become increasingly important, “all politics is global.”

In the day where revolutions can be coordinated via social media and 24-hour news cycles need “news” to fill the entirely of their schedule, it’s hard to escape the news of the economic crisis facing the European Union. As the world has become smaller, flatter, and hotter (to paraphrase Milton Friedman), the global economy has come around to where elections in Greece actually do affect stock markets in New York and vice versa. There’s no way around it. The economic issues that are affecting the entire EU have become not just part of the daily news cycle, they are integrally related to our own economic health and recovery.

To that end, there are real lessons we need to learn from the German-led experiment in recovery through austerity that is being pushed (some would say forced) on Europe by the center-right government of Chancellor Angela Merkel. They are lessons both political and, even more importantly, economic that we ignore at great peril.

The main European response to the financial crash of 2008 has been lead by Germany. Germany has the most stable and largest economy on the continent. That, combined with the EU’s largely ineffective governance, means it holds the purse strings to the bailout money that debt-stricken EU countries have been forced to ask for as their smaller and more fragile economies faltered under the pressures of the Great Recession. This power means that they have had the upper hand in any bailout negotiations.

Germany has been using this clout to attach requirements to the governments that accept these bailouts, which are largely financed by their banks. With an almost obsessive nature, Germany has used this clout to foster a one ingredient recipe for getting these smaller economies, and Europe as a whole, out of this recession. That one ingredient recipe has been a relentless push for austerity measures, cuts in government infrastructure investments, social services, and government spending in a way that our Republican Tea Party House of Representatives has only dreamed of.

So, after three and a half years of austerity (ironically, about as long as President Obama has been in office), they have an economy almost as large as ours with a population roughly the size of ours. We’re in a good position to ask the question: has it worked?

Even the most casual glance would yield the answer, “no”.

European governments dealing with financial crisis have, at the insistence of Germany, cut many items out of their budgets and are still facing uncertainty. Putting aside the massive unpopularity that cutting the social safety net has created, this level of austerity being imposed on European governments has decreased confidence in their economies across the board. In short, it has caused more contractions in problem economies, not the stabilization and growth they need. Citizens don’t want to spend or invest because they’re busy holding onto the savings that managed to survive the crash.

The irony is that the social welfare programs that are being cut in Europe are the same programs that are supposed to keep the middle class afloat during bad financial times, instead of slipping into the lower class when they lose what’s left of their assets. Since these protections are no longer there, the newly-minted lower class is putting even less money back into the economy, which slows recovery further.

That’s not to say there aren’t problems. Greece needs to address an unsustainable government pension system. Italy needs to deal with the corruption and graft that having 48 Prime Ministers in 52 years causes. Portugal was a poor country with few exports even before the Euro and the Great Recession, which needs to find a way to grow its economy regardless of the existence of a “Euro-Zone”. However, these matters cannot be addressed by “turning on a dime” budget cuts.

Without government investment, as the new French President Francois Hollande pointed out, Europe will fall back into recession while taking us, and the rest of the world, with them. Even in Germany, voters have started to realize this, handing Merkel’s Christian Democratic party a series of defeats in recent state and local elections. Europeans have figured out that austerity at all costs won’t save them, even if the German Chancellor hasn’t.

Seeing not just the political costs but the economic failings of these austerity measures in Europe, it seems strange to take that failed experiment from Europe to America as right-wing Republican politicians demand. They say we can cut our way to recovery just like the EU. However, that cutting hasn’t lead to recovery in the EU. The issue is that, as a whole, cutting budgets has been bad for Europe.

I’m not going to sit here and write that you shouldn’t demand that your government be fiscally responsible, that it root out corruption and graft, or that it reform unsustainable or unworkable programs. On the other hand, you can’t demand cuts for cuts sake and expect people, real people, to work to grow their economies. Going forward, America needs to remember that economies grow by investing in them, whether it’s in innovation, infrastructure, or, most importantly, the workers that create it in the first place.