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Examiner editorial: Liberal pundits play pretend on European austerity

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Incumbent governments overseeing wobbly economies are falling apart across Europe. In the Netherlands, Prime Minister Mark Rutte tendered his government's resignation after he failed to produce a budget. In France, socialist Francois Hollande ousted President Nicolas Sarkozy in Sunday's vote. And in Greece, the two parties that supported last year's European Union bailout suffered significant losses at the polls.

 

The source of voter discomfort is no mystery. While not technically in a recession, Europe is heading for a severe slump. Average unemployment in the European Union is at 10.2 percent, and the European Commission predicts that its economy will shrink by 0.3 percent in 2012.

American liberals have been quick to diagnose the source of Europe's economic problems. "Blame it on austerity economics," Clinton Labor Secretary Robert Reich writes, "the bizarre view that economic slowdowns result from excessive debt, so government should cut spending."

The New York Times' Paul Krugman added Monday, "Claims that slashing government spending would somehow encourage consumers and businesses to spend more have been overwhelmingly refuted by the experience of the past two years. Spending cuts in a depressed economy just make the depression deeper."

To hear them describe it, you'd think European austerity was just about spending cuts. Quite the contrary. Although Krugman curiously fails to mention the word "taxes" in his latest column, tax increases have most certainly played a part -- and in many cases the largest part -- in the European austerity packages he is decrying.

The Organization for Economic Co-operation and Development reports tax hikes made up 47 percent of France's deficit-reduction package -- 21.5 billion out of 46 billion. In Greece, 54 percent of their austerity package came from higher taxes, and in Portugal, the breakdown was 62 percent tax hikes and only 38 percent spending cuts. Such reliance on tax increases is the exact opposite of what economic history recommends. As a recent OECD report concluded, "International experience shows expenditure-based fiscal consolidation tends to be more successful" than increasing taxes.

But Reich, Krugman and President Obama all favor a large tax increase for the United States. Both Reich and Krugman have recently endorsed a 70 percent top marginal tax rate. Obama is doing nothing to prevent the $494 billion "taxmageddon" that is set to occur automatically on January 1, 2013, when the Bush-era tax rates expire under current law.

Austerity packages, no matter how constructed, are always painful for at least some segments of the population. They are more or less painful depending on how dependent a population has become on government financial assistance. This is why it is so vitally important to deal with the problem early, as House Budget Committee Chairman Paul Ryan proposes in his Path to Prosperity. If Congress reforms these programs now, it will not only empower Americans to make more of their own health and retirement decisions; it will also help the nation avoid reneging on unrealistic promises later. The alternative is playing out across Europe now.

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