Wisconsin: Unofficial Member of the European Austerity Club

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.

Log coincident indices for Wisconsin (blue) and for US (black), rescaled to 2011M01=0. Vertical dashed line at 2011M01.

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.


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7 thoughts on “Wisconsin: Unofficial Member of the European Austerity Club

  1. And just look across the pond to Europe to see the failures of austerity as a policy. Spain got downgraded again today as their unemployment hit 24.4%, and the UK has now fallen into recession under Cameron’s austerity.

    The difference is that in Wisconsin, the goal is for failure, and to have the state go broke and have to sell off needed services to GOP campaign contributors. This is very obvious, and it needs to be stopped in 39 days. It is absolutely “Shock Doctrine” politics by people like Walker, which isn’t surprising because he’s never had a real job outside of politics, so why wouldn’t you have an economic plan about politics over actual results?

    1. As I said in the post, I’m not ready to be that paranoid yet… Personally, ascribing the intelligence needed to evoke a shock in the system to this batch of dunderheads stretches credulity to the breaking point. I don’t think Walker and the Fitz’s can think that far ahead. Although given that so much of what they push is created by out-of-state interests (via ALEC), it’s entirely possible that they are dupes to forces at work trying to generate a crisis.

      That… that I could believe.

  2. A little confused. Pro-growth typically refers to boosting private sector growth with limited government involvement – reducing tax burdens, regulatory burdens etc. Walker did implement pro-growth policies to reduce cost burdens on the private sector: his corporate tax cuts and “tort reform.” Pro-growth is the handmaiden of austerity.

    On leeches: Bernstein doesn’t spell it out very clearly, but the UK is now officially in a double dip recession due to Cameron’s austerity policies. Joe Wiesenthal’s new MoneyGame Chart of the Day also puts European austerity into perspective:
    The point where Cameron-style austerity begins is the point where UK GDP growth declines.

    And, you are right – it was Einstein who defined insanity as doing the same thing repeatedly and expecting different results.

    Yes, indeedly-doodly, we are in a state of disaster capitalism induced by GOP austerity policies. Spare no mincing there.

    1. A little confused. Pro-growth typically refers to boosting private sector growth with limited government involvement – reducing tax burdens, regulatory burdens etc. Walker did implement pro-growth policies to reduce cost burdens on the private sector: his corporate tax cuts and “tort reform.” Pro-growth is the handmaiden of austerity.

      Sorry, I was using the term “pro-growth” in the sense that one implements policies that actually, you know, grow the economy. Not the faux “pro-growth” voodoo economics of the GOP, but a rational, based-on-data approach to structuring government in a way that it provides support to the citizens, educates them, ensures their well being and provides a strong, willing, and able workforce to industry.

      A system which does not encourage economic bottom-feeding at each and every opportunity, but one which lifts industry up as part of a functional public / private economic balance.

      I should have been clearer… 🙂

  3. Thank you for clarifying. My intent wasn’t to harp on the point, but rather to unpack it. Primarily because we need to scrutinize austerity in all of its permutations. Pro-growth policies, to my mind, are one of those permutations. Pro-growth measures generally inspire confidence, or so the theory goes. The Democratic establishment is embracing pro-growth as a so-called “anti-austerity” measure rather than an FDR approach. It doesn’t sit well with me.

    Ex: The State Department and White House are really pushing for the development of “The Impact Economy” as a solution to our ongoing economic woes. It sounds good on the surface with its focus on entrepreneurship/impact investing in order to yield both positive social outcomes and high profit returns. But, I don’t trust it. It is grounded in blurring the distinction between the public and private sectors with public-private hybrids (corporations and philanthropic organizations) and the focus is on Wall Street not on Main Street. I see public sector diminishment in this model or call it slow decline austerity. Rather than lobbing off massive chunks like the GOP austerity measures do – The Impact Economy slowly corrodes. Not too different from the privatization trend causing public sector decline over the last 30 years. The effort is predicated upon the idea of using government tools for eliminating barriers to investment/growth with one barrier being regulation. It appears to assume that “unlimited growth” in the free market can be sustainable.

    Abele and Barrett seemed immersed in this model. It relies on the old adage “the private sector is better at solving problems than the public sector (the government).” Its intent is injecting corporate leadership and corporate models into public systems.

    From what I can glean it treats the public sector as a commodity. It does not seem to take into account that much of what the public domain supports will never be profitable ventures because the benefits are intangible and unquantifiable: security, cultural arts, health, education. The Impact Economy denies this public infrastructure its uniquely public domain.

    In terms of austerity, this Democratic agenda doesn’t seem to favor public investment in public infrastructure. So while it may not starve the beast, it will happily emaciate the beast as more public resources are diverted to public-private partnerships.

    Unlike a direct investment approach like FDR, it still relies on the private sector (and private sector confidence) for recovery. Which means more lag time and little sign of immediate relief for those in crisis. I’m not willing to slam it down outright because I have to learn more about it. At the outset, however, it’s looking to me like a wolf in sheep’s clothing. So when we talk about austerity policies let’s know where we are going with it. Walker doesn’t call his pro-growth measures “austerity” but then again, neither do Falk and Barrett, the presumptive challengers. Vinehout seems to be the only one who understands what healthy public/private balance means. Even then, I’m not so sure as I have yet to see the details of her plan.

    Anyway, just sayin’ – austerity is a hydra with a cloaking veil of glamour.

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