Mark McKinnon: Why the Euro Crisis Matters to Americans
How arrogant our European partners must think we are to lecture them on balancing growth with fiscal discipline when we have mastered neither.
In May, the U.S. unemployment rate rose to 8.2 percent. Our already sluggish GDP numbers were revised down. Initial claims for jobless benefits rose. Fewer than expected private-sector jobs were created. Job cuts actually climbed. And 23 million Americans remain unemployed or underemployed.
Yet, as our national debt clock ticks toward $16 trillion, the message from the White House this week is that Europe needs to take more steps to tackle its debt and economic woes.
“Back at you,” might be an appropriate response from German Chancellor Angela Merkel, a country that witnessed a first-quarter GDP surge.
Yet as my colleague Jack Martin, global chairman and chief executive of H+K Strategies, recently wrote: “Europe’s problems are the world’s problems.”
He’s right. In our increasingly interconnected world, mounting debt in Greece, austerity fatigue in France, and anti-incumbency sentiment in Germany all have a direct impact on the United States. And the growing unrest among Europeans, along with the gyrations of stock markets around the world, remains a cautionary tale for America, where deadlines loom.
In December, we will hit the debt ceiling once again. The Bush tax cuts and payroll-tax cuts will expire and automatic cuts kick in from the last failed debt-ceiling negotiations. The economy is facing a mammoth $607 billion hit in 2013.
“There's now an emerging consensus that more must be done to promote growth and job creation right now,” said President Obama after economic talks with Europe’s leaders at Camp David two weeks ago.
The president is correct. Growth is needed. But growth can mean very different things: growth through increased deficit spending, as tried in Greece with disastrous effects; growth through spending cuts, as tried in Germany, where frustration about supporting fellow Europeans is mounting; and, growth through tax increases as the new president of France proposes, the results of which have yet to be seen.
With the upcoming election and the future of the nation—even of the world—at stake, a balance of growth strategies is needed in the U.S. For Americans, jobs and the economy are the top concern. A majority of people in this country are already dissatisfied with the size and power of the federal government. They prefer a smaller government with fewer services and lower taxes.
Turning one dial alone will not tune the economy. Continued deficit spending will take us down the path to Greece. Tax increases like those proposed in France will take us down a similar path, albeit more slowly. And budget cuts without structural reforms will only postpone the trip.
Europe’s definition of austerity—relying on tax increases alone—will not work here, as evidenced by California’s current woes. A balanced approach is needed with increased government spending in some areas, budget cuts in others, increased tax revenues not rates, and the hardest of all, structural reforms.
Two balanced plans have already been put on the table. Rep. Paul Ryan (R–Wis.) has proposed a budget, which was approved in the House last year “to preempt austerity by getting our borrowing under control, having tax reform for economic growth and preventing Medicare, Social Security, and Medicaid from going bankrupt.” Meanwhile, the Simpson-Bowles Plan, a bipartisan effort, utilizing both cuts and revenue increases, was handed to President Obama. Unfortunately, partisan politics prevailed and neither plan gained any traction.
“The breakdown of responsible budgeting is clear: out-of-control government spending; four consecutive trillion-dollar deficits; and a crushing burden of debt in the years ahead,” Ryan said last week at the opening of a House Budget Committee hearing.
“Both political parties share in the blame for our fiscal mess,” he added. “I believe it will require both political parties to work together to find common ground and right this fiscal ship.”
Ryan’s metaphor is apt. The alarm bells are sounding on the Titanic. The Dow ended last week down, losing all the ground it had gained for the year. And markets in the U.K., Germany, France, Spain, Japan, and China continue to roil. Our economic and political problems are theirs. And their economic and political problems are ours. The iceberg is dead ahead. The fiddling must end. It’s time to call all hands on deck to prevent the U.S.S. Economy from going down.