Americans love a good fight. We are always looking for the next confrontation, the next battle, the next argument.
Just look at our television shows: flip through MTV and you can get reruns of Jersey Shore, where roommates yell at one another and meat-heads punch walls; switch to CNN and you can watch pundits spar with words and spit with indignation. Most of our fictional shows involve lawyers arguing, or doctors fighting over surgeries.
Our political and economical arguments are based on a cultural need to take a stand against something, anything. All of our ideological differences fought over in public, via the different media outlets, now resemble a boxing ring. "In this corner, from the great state of I Think That The Government Is Evil, weighing in on almost every news story, Mr. Stereotypical Conservativvvvvvvvvve. And in the other corner, from the great state of I Am An Elitist Hippy, Mr. Stereotypical Liberaaaaaaaaal."
It is not fun to give an opinion unless everyone knows what "side" you are on, or what "party line" you will take.
And guess what? Economics is no different. For years, the entire globe has been taking positions on whether austerity or stimulus is the better economic prescription to fight cyclical recessions.
Austerity, a favorite among conservatives, is the belief that governments have a moral and fiscal responsibility to reign in public debt lest confidence in the market is destroyed; it is far more important to balance the fiscal budget than focus on growth. It is also the belief that price stability should be given precedent over unemployment.
Stimulus, or Keynesian demand theory, is the belief that recessions are elongated by a lack of aggregate demand. When consumers, households, and businesses hold back on purchasing at the same time, it causes the economy to contract. A stimulus supporter believes that the government should increase short-term spending to boost aggregate demand.
So, what color shorts are you wearing in the ring? Whose side are you on? If you picked Austerity, you may want to reconsider.
Not only has Austerity not worked in practice, it was just discovered that the Harvard professors who touted austerity made a simple excel error, which completely changed their data and conclusions to support that an increase in public debt correlates with slower growth. Oops.
A graduate student from the University of Massachusetts found that the two professors not only forgot to include a number of developed countries but that they forgot to weigh the average of some important data. The underpinning of their whole austerity argument has now been debunked.
Now, countries have started to ease back on their draconian and arbitrary cuts. José Manuel Barroso, the European Commission President, stated that, "...socially and politically, one policy that is only seen as austerity is, of course, not sustainable." It is about time.
The UK enacted austerity five years ago and growth has slowed down to embarrassing levels. The current projected .07% GDP growth has some policymakers worried. In Spain, there is a depression, due in part to failed austerity policies. The unemployment rate has reached a new high at 27.2%. Spaniards are suffering because officials think that Spain's interest rates could skyrocket if it fails to cut back. The government fiscal decision makers also cite possible inflation problems.
All of this sounds too familiar as deficit hawks in the United States, mostly Republicans, have screamed about government spending. Instead of reaching a compromise by increasing federal revenue, by taxing the very wealthy, deficit hawks have facilitated the implementation of the Sequester cuts. We have already started to see the negative effects. And for what, price stability, lower inflation, and good interest rates?
Unemployment is more devastating and causes more misery than an increase in inflation. Researchers have found that people prefer inflation over unemployment because joblessness is more personal and depresses well-being. Furthermore, small levels of inflation have been a good monetary policy for a myriad of reasons.
Moreover, interest rates have and will continue to be low. There is no immediate danger of investors losing faith in America meeting its debt obligations. Put simply, Austerians and deficit hawks are pushing forward a plan that does not work practically or theoretically.
I like a good fight. I like winning too. That is why I encourage you to get more involved when it comes to pressuring our elected officials to reach a budget compromise. The arbitrary Sequester cuts need to stop before more damage is done. So turn off MTV, CNN, or Grey's Anatomy and let's fight the good fight. It is what Americans do best.
