CNN's Zakaria and the Austerity Myth

CNN’s Fareed Zakaria used to have some interesting things to say about democracy and economics. But in the Barack Obama era, he has become little more than a political hack, twisting facts and spinning news in the hope of benefiting his presidential patron. Case in point: on this morning’s episode of Global Public Square (GPS), Zakaria touted the Obama administration’s dismal economic stimulus in comparison to Europe’s “austerity”:

Obama has been pivoting at the very moment that events in the real world are providing him with the perfect campaign issue. We are four years into the financial crisis. In the United States, the government acted speedily and massively to stimulate the economy using monetary and fiscal measures.

In Europe, by contrast, governments quickly turned toward austerity programs, cutting spending across the board to reduce budget deficits. Well, the results are in: The U.S. economy is expected to grow 2 to 3 percent this year.

The euro zone is expected to contract, to shrink, by 0.3 percent this year. Spain and Britain have officially entered a double-dip recession, the first time major economies have done so in 40 years. IMF projections show that even Germany’s average growth rate over the next five years will be only 40 percent of America’s.

Zakaria’s advice to Obama is to present American voters with a choice between tepid economic growth through massive stimulus on the one hand, and double-dip recession through austerity on the other: “He should… frame this campaign as a choice between public investments on the one hand versus budget cuts on the other. He has substance behind his rhetoric.” 

In other words, Zakaria says, Obama should offer Americans a choice between bad and worse. That is, perhaps, one way to spin disappointing first quarter GDP growth of only 2.2%–and to reframe economists’ expectations downward from roughly 3 percent to “2 to 3 percent.” 

However, it is also a flagrant distortion of the truth–both about the U.S. and about Europe. 

American growth has been happening in spite of, not because of, the stimulus, which went to prop up inefficient government programs and payrolls–and reward cronies.

And the countries Zakaria cited as examples of failed “austerity” in Europe tended merely to slow the rate of growth in government spending, rather than cutting the size and cost of government. 

As Dan Mitchell of the Cato Institute has pointed out, those few European nations that have actually slashed the size of their government significantly–the Baltic states of Lithuania, Latvia, and Estonia–have experienced economic recovery. Those who have practiced “faux austerity” have failed. And the rapid increase in government spending over the previous five years in those countries has much to do with how the economic crisis started in the first place. 

Zakaria’s argument was entirely predictable–we had, in fact, anticipated it nearly a week ago at Breitbart News, predicting that it was only a matter of time before one of Obama’s many media mouthpieces tried to make the case for stimulus against austerity. 

That is why we published Mitchell’s article on the Portuguese finance minister’s regrets about “stimulus” that merely pushed up government debt without growing the economy. The point is not that there is a one-size-fits-all solution; the composition of an austerity planp may matter more than its size. But experience has taught us that there is a guaranteed recipe for failure, and that is massive stimulus combined with bigger government.

What America needs is not just lower spending but less government, because the size and scope of government is limiting economic growth. The debate in the 2012 elections is not “stimulus” versus “austerity,” but insolvent economic stagnation versus solvent economic expansion–or, to put it more simply, more government versus more freedom.

Zakaria is right that an “austerity” policy  that merely slashes budgets without reforming government is unlikely to work. But a “stimulus” policy that inflates deficits while holding back economic growth and adding to the debt burden of future generations is an even bigger loser. 

This election does not have to be a choice between bad and worse–it really can be a choice between bad and better, if the voters–and the challenger–can see beyond the statist orthodoxy of Obama and his media minions.