What Congress Can Learn From Europe: Economists Say Massive Budget Cuts Will Lead To Another Recession

The European economy grew just 0.2 percent in the third quarter as it remained plagued by the continent’s spreading fiscal crisis, according to official data released by the European Union today. The crisis has only deepened as countries have enacted massive austerity plans, forcing through widespread budget cuts that have stunted economic growth. In Spain, austerity has driven the unemployment rate to 21.5 percent.

As Europe continues its slide, the effects are sure to be felt in the United States, where the threat of a recession in 2012 is now greater than 50 percent. “It is not something that we would be insulated from,” Federal Reserve Chairman Ben Bernanke said last week. “I don’t think we would be able to escape the consequences of a blow-up in Europe.”

But even with evidence that austerity is wreaking havoc on European economies, American policymakers remain intent on following that lead. But chasing Europe down the austerity hole is only ensuring that the U.S. will experience another “great recession,” according to economists surveyed by Politico:

To engage in austerity right now would be a great mistake,” insisted Desmond Lachman, an economist with the conservative American Enterprise Institute. “It would push the economy into a great recession.” […]

We need to learn from the European recessions,” said David Walker, former comptroller general of the United States, “and structure our own program” accordingly. He, too, said he considers large, near-term budget cuts potentially disastrous. Walker and other experts said significant budget cuts are certainly necessary — eventually. But not now. […]

Austerity brings a cyclical contraction,” said Thomas Kleine-Brockhoff, a German who is senior director for strategy at the German Marshall Fund in Washington. “You can’t just slash. You also have to invest and reform.” In his view, U.S. politicians don’t seem to appreciate this because they hold “a dangerous philosophy of American exceptionalism, as if they were exempt from the rules of finance.”

Despite these warnings, congressional leaders — particularly on the right — continue to push for massive spending cuts to a variety of programs, while opposing economic stimulus that could spark growth and recovery. The House will vote this week on a radical Balanced Budget Amendment that would force bigger spending cuts than even the fiscal super committee could ever dream of, drive up the unemployment rate, and ensure that future recessions will be even more painful.

The GOP, along with some moderate Democrats, has opposed the American Jobs Act, which would inject money into the economy in the form of infrastructure investment, aid to states to hire teachers and public safety officials, and other measures designed for job creation. Instead, they have focused on anti-regulatory, anti-spending policies that have little (if any) effect on job creation.

As these economists noted, clear evidence exists across the pond that widespread austerity measures will only stunt economic growth and push the U.S. closer to the brink of another recession. Unfortunately, Congressional leadership continues to ignore them.