In a brilliant lead editorial in Germany’s left-leaning Der Spiegel, Michael Sauga takes direct aim at President Obama’s economic message of spending more and more money. As he puts it, “the Obama administration is borrowing money at the same rate as near-bankrupt Greece.” Sauga is devastating:
US President Barack Obama has recently suggested that Europe must take on more debt to stimulate the economy. Such reliance on cheap money, though, is what got us into the current crisis in the first place — both in Europe and in the US. America’s problem isn’t too little money. It’s a lack of competitive products.
By pushing for hyper-Keynesian stimulus, Obama is not only putting America further into debt, he is laying the seeds for the next financial crisis, he writes.
American economists, central bankers and fiscal policy makers have reinterpreted British economist John Maynard Keynes’s clever idea that government spending is the best way to counteract a serious economic downturn — and have turned it into a permanent prescription. In their version of the Keynesian theory, declining growth or tumbling stock prices should prompt central banks to lower interest rates and governments to come to the rescue with economic stimulus programs. US economists call this “kick-starting” the economy.
The only problem is that this method of encouraging growth has not stimulated the US economy in recent years, but in fact has put in on a crash course. From the Asian economic crisis to the Internet and subprime mortgage bubbles, economic stimulus programs by monetary and fiscal policy makers have regularly laid the groundwork for the next crash instead of encouraging sustainable growth. In the last decade, the volume of lending in the United States grew five times as fast as the real economy.
Fortunately, argues Sauga, Europe is largely ignoring Obama’s advice. That may in the end be what saves us.
It is all the more disconcerting that Obama is now recommending that the Europeans emulate his failed strategy. To save the euro, the president has proposed that Europe take on more debt to augment their bailout funds and stimulate their economies. Like a doctor caught prescribing performance-enhancing drugs, Obama has not chosen to cease his activities. Rather he is trying to ensure that as many people as possible have access to his wares.
The fact that Europeans are unwilling to comply with Obama’s strange logic gives reason for hope. It makes no sense to pile up more and more debt on already unstable piles of debt. The world doesn’t have too little debt, but too much.
The full article can be found here.