Obama's Growth Is Europe's Stagnation

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Growth: At the weekend meeting of G-8 leaders, President Obama exhorted his colleagues in Europe, and especially Germany, to focus on "growth," not austerity. Is this a joke?

The president seems confused. He thinks more government spending, not less, translates to more economic growth.

It's easy to understand why. Conventionally educated in Keynesian economics, the president, like others on the left, actually believes in things like the government "multiplier" - where a dollar spent by government yields more than a dollar in economic activity.

It doesn't, of course - as economists from Robert Barro at Harvard to John Taylor at Stanford have shown. Yet, at the G-8 meeting, that's exactly what Obama told German Chancellor Angela Merkel and the rest of the EU to do: boost growth by spending more.

Merkel must have been perplexed. Germany's economy is growing, in large part because it ignored the earlier bad advice of those well-meaning economic incompetents who advised it to spend its way to prosperity.

Since the last quarter of 2009, Germany's average annualized GDP growth has been 2.8%; the U.S. rate, even though it hasn't had to deal with a second financial crisis as Germany has, has been just 2.4%.

As Germany grows, most of the rest of the EU - especially heavily indebted, big-spending Greece, Spain, and France - are sliding back into recession.

Maybe Obama should ask Merkel for advice. But sadly, Obama and the economic illiterates who back him in the media actually believe that more government spending translates into more economic growth, while "austerity" - that is, living within your means - kills it .
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This, in essence, is what the president told the G-8 leaders during their weekend powwow - to pursue "growth," not "austerity." Trouble is, it's a false choice.

When he says "growth," Obama really means more stimulus spending. This is a path the U.S. and European Union have already followed, adding trillions of dollars of ruinous debt to the West's economies, without any growth in jobs or the economy to show for it.

But studies show what Obama calls "austerity" - cutting spending and debt - in fact leads to faster growth.

A recent paper by IMF economists Manmohan Kumar and Jaejoon Woo showed that "on average, a 10-percentage-point increase" in debt led to a slowdown in real annual per capita GDP of about 0.2 percentage point a year.

Meanwhile, a 2009 study - the biggest of its kind, conducted by economists Alberto Alesina and Silvia Ardagna, and looking at 107 different instances of "austerity" over 30 years in dozens of countries - found that spending cuts without tax hikes was the best way to make an economy grow again after a fiscal crisis.

In short, encouraging countries to spend more and boost their debt is a proven growth-killer.

Those on the left love to lecture others about being part of the "reality-based community" and heeding evidence, not prejudice, in forming views.

In this case, the evidence is overwhelming. Obama and the left are wrong. Stimulus has failed. In both the U.S. and EU, it's time for real cuts to be made.

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