Economically, Scott Walker and the Republicans have dragged Wisconsin into a debate about the ability of economic austerity to create growth. Much crowing happened on the right when Walker and the GOP claimed to have balanced the state budget and closed a $3.6 billion gap (even though that was a lie, we’ll pretend, for the sake of argument that there was a gap that needed to be closed). But rather than attempting to close the gap through pro-growth policies, the GOP chose the path of the Eurozone and implemented a series of austerity measures that, as we now see, have brought Wisconsin’s economy to its knees.
If I were the paranoid type, I’d say Wisconsin was having a Naomi Klein moment. But I digress…
Meanwhile, south of the border (the Illinois border, that is!), a state with a poor public fiscal record is actually faring quite well on the private sector side. Illinois’ economy is booming! They’re adding jobs and growing. Meanwhile, here in the north woods, we’re suffering under the yoke of austerity. All because of something called “confidence.” The economists advising the Illinois state government recognized that you don’t cut public demand during a private demand slump. Ever. You continue to pump money into the state economy, generate demand and re-start the engine. That’s what Illinois has done and it’s what we should have done in Wisconsin.
“We cannot get business to invest,” we’re told by the acolytes of austerity, “until we get our fiscal house in order! We must cut, cut, cut!” Well, we’ve done that and the results are on the table for all to see. The worst job growth record in the nation, a stagnant private sector and a crippled public sector. As economist Jared Bernstein joked in a blog post, “Leeches! I must have more leeches!” Referring to austerity in the United Kingdom, Bernstein observes that
…the authorities are sticking with the leeches, and this in the land of Keynes! Wasn’t it Jung who defined insanity as doing the same thing over and over again, yet expecting different results? The proof is left to the reader.
Actually, I believe it was Einstein, but no matter. Across Europe we’re seeing a retrenchment in the belief that “if we only drain a little more blood from the patient, she’ll surely recover!” Well, in economics as in medicine, we’ve come a long way from that, though you wouldn’t know it by listening to the Europeans (or the Walker administration).
Despite this double-down on the stupid by the UK finance minister, Paul Krugman is guardedly optimistic, an unusual place to find him. I often refer to him as Krugsandra after his prescient but oft ignored prognostications about the future. Like Cassandra who predicted the fall of Troy though nobody would listen, Krugman accurately predicted the results of austerity.
In his bi-weekly OpEd today, Paul Krugman wrote of the death of the confidence fairy.
For the past two years most policy makers in Europe and many politicians and pundits in America have been in thrall to a destructive economic doctrine. According to this doctrine, governments should respond to a severely depressed economy not the way the textbooks say they should — by spending more to offset falling private demand — but with fiscal austerity, slashing spending in an effort to balance their budgets.
Critics warned from the beginning that austerity in the face of depression would only make that depression worse. But the “austerians” insisted that the reverse would happen. Why? Confidence! “Confidence-inspiring policies will foster and not hamper economic recovery,” declared Jean-Claude Trichet, the former president of the European Central Bank — a claim echoed by Republicans in Congress here. Or as I put it way back when, the idea was that the confidence fairy would come in and reward policy makers for their fiscal virtue.
My fellow badgers, Walker and the GOP have worshiped at the altar of the Confidence Fairy for far too long now. They have sacrificed the economic well-being of the citizens of the state in an effort to drain the public coffers into the pockets of their crony friends. For example,
“This expansion investment by Winsert is more good news for the Marinette area,” Gov. Scott Walker said in a statement. “It is another sign of the confidence our manufacturers have in Wisconsin’s business climate.”
Menzie Chinn, an economist who blogs at Econobrowser has been tracking the Wisconsin non-recovery for some time now and her most recent post shows how bad things are in Wisconsin.
Private nonfarm payrolls have declined, and are essentially back to levels at the beginning of Governor Walker’s term. Nonfarm payroll employment is about half a percent below. Note that the apparent surge in Wisconsin employment back to 2011Q1 levels at the quarterly frequency masks a downturn in March.
February readings of aggregate activity, as summarized by the Philadelphia Fed’s coincident indices, confirm that Wisconsin has been treading water, on net, since January 2011. In contrast, the United States economy as a whole is now nearly five percent above January 2011 levels.
We must kill this faith-based economic system and we must kill it dead on June 5th. We’ve been living under this failed regime for 18 months now and it’s time to give it the boot.