Why Spain’s New Government is Drinking Austerity Kool-Aid and How This Threatens the Global Economy

From Alternet: http://www.alternet.org/economy/153640/why_spain%E2%80%99s_new_government_is_drinking_austerity_kool-aid_and_how_this_threatens_the_global_economy/

European elites push economic myths that benefit the rich and screw the rest. Spain's program means even higher public deficits, fewer jobs, and slowed growth.

By Marshall Auerback
January 3, 2012

Spain's new government said late last month that this year's budget deficit would be much larger than expected and announced a slew of surprise tax hikes and wage freezes that could drag the country back to the center of the eurozone debt crisis. The government plans to enact public spending cuts of 8.9 billion euros ($11.5 billion) and tax hikes aimed at bringing in an additional 6 billion euros a year to tackle the shortfall. Given what has happened to Greece, and now Italy, it is almost certain that this will have the opposite impact of that which the Spanish government wants: there will be HIGHER public deficits at the end of the day, as the cuts curtail economic growth even further.

Self-inflicted Catastrophe

Spanish employment fell by a whopping 72,075 in November, which came on the heels of an even bigger 82,944 decline in October. The Spanish employment data is really terrible. To get a feel for these numbers, you have to realize that Spain’s employment is about one-eighth that of the U.S. We are talking about employment declines in the last two months that would correspond to monthly declines of more than 600,000 if it were the U.S. economy. In the prior three months Spain’s employment declines corresponded to the equivalent of almost 300,000 job declines a month in the U.S. Would anyone doubt that the U.S. was in a deep recession if it reported such horrible employment data? Of course not.

The eurozone, indeed, the entire global economy, continues to experience a self-inflicted catastrophe, largely because of dangerously destructive myths about fiscal policy. In spite of the shrill rhetoric of the fiscal austerity brigades, the evidence in Europe continues to mount that a nation cannot have a fiscal contraction expansion when all other spending is flat or going backwards. Unless you want an economic disaster.

Let’s look at some macroeconomic issues in a simplified form:

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