What are the lessons from the Greek crisis? Their economy had major problems. People with plenty of money weren’t bothering to pay taxes. And the Greek government provided benefits beyond its means and beyond the pace of investment to maintain. So the EU was certainly correct that Greece had problems that Greece has to deal with. But that’s not the whole story. Greece needed multiple remedies, to cure its mistakes but also to stimulate its economy.
Think about what we do in America. Periodically states are bankrupt or depressed. We don’t offer secession or a sale to Mexico. We didn’t ignore problems in Appalachia, Arkansas and other struggling states. Within states, we don’t ignore depressed areas. Sometimes we put communities in receivership, but that’s not our only tool. Although Tea Party Republicans don’t want to recognize it, we do have another American strategy – we invest. The Cuomo Administration is investing in areas around colleges and universities, spread throughout the state. We’ve had business empowerment zones. Military bases have been used for economic purposes. And we build infrastructure or housing or convention centers. Some investments are unwise wishful thinking. But the instinct is shared, American, and, used intelligently, it works. Conservatives don’t like to admit the Keynesian economics behind it, but they use these techniques wherever they are in control. They just call it good business.
States are barred by the Constitution from printing money. If Greece exited the Eurozone, it could issue currency or pay its employees with i.o.u.s for use as currency. Either way a devalued currency could make Greek goods and services worth buying.
Greece’s finance minister accurately explained that austerity deepens recession. The EU has responded with the same economic strategies that had been discredited before the Great Depression of the ‘30s. If the economy shrinks in response to austerity, nothing is left to pay debts, much less to invest. For an economy in trouble austerity alone is the wrong prescription at the wrong time for the wrong disease. It works only if the desired outcome is to kill the patient. Unfortunately, the EU hasn’t used other tools needed to deal with the recession.
The lesson here is the contrast. Cutting expenses cannot be the only tool. Investment works. Infrastructure, science and educational investments work. Congressional conservatives are too skittish about investing in America. They need to do what their own state governors do – invest in economic development. There is plenty of room in the U.S. for investment that will contribute to the American economy. Intelligent public investment can yield multiple rewards: the immediate reward of assisting people get back on their feet, the return of some of that money as taxes, and the longer term rewards of facilitating business. That is the virtuous cycle that every good economy needs.
Neither taxes nor tax cuts automatically yield economic benefits. Cutting business taxes will probably not raise the chances of business investment if they are already sitting on money. Cutting personal taxes won’t put us on the road to recovery to the extent that consumers buy abroad. The devil is in the details. But the visceral objection to all investment by government because it is government needs to give way to a more intelligent discussion of the investment we need and the investment that will pay dividends for years.
— This commentary was broadcast on WAMC Northeast Report, July 14, 2015.