David Blanchflower, professor of economics at Dartmouth College, explored the issue of economic austerity, a policy reducing government spending, in Europe, and presented alterior methods to address deficit.
He criticized the current economic policies prevalent in Europe in which reduced government spending is often used to pay off national debts and in turn, reduce the deficit, but generally leads to an increase in tax rates or a decrease in the supply of public services.
The event was co-sponsored by Sigma Phi Epsilon. Blachflower provided information to students, faculty and staff regarding the effects of political and economic decisions currently employed throughout Europe. Blanchflower described the current decisions as common, but perhaps impractical Feb. 29 in LaRose Digital Theatre.
The quickest way out of a recession is through policies encouraging national economic growth rather than unduly focusing on deficit reduction, Blanchflower said.
“Dealing with the deficit is a 15 - 20 year issue,” he said. “Trying to resolve it too soon prevents growth.”
Growth will prevent business anxiety and thus hold unemployment at a reasonable level, according to Blanchflower.
“Unemployment rates in Greece are at 21 percent and in Spain reaching 23 percent because of their lack of a strategy for growth,” he said.
Blanchflower explained the results of business anxiety and hinted at the concept of a self-fulfilling prophecy within European culture.
“When governments cut spending in an attempt to reduce their deficit, businesses become anxious over the national economy,” he said. “When businesses become anxious, job cuts are inevitable. When unemployment increases, labor anxiety lowers public spending and therefore creates an elongated, ‘double-dip recession.’”
This fundamental principle perpetuates the Eurozone crisis, Blanchflower said.
Nevertheless, Blanchflower said some economies have dealt with the recent recession efficiently. He identified France as a prime example, having entered the recession later and left earlier than most comparable nations. But, as many European countries are locked into the European Central Bank, and thus have no national currency to oversee, a snowball effect transpires.
“If one EU nation has poor quarterly growth rates, as Greece, Ireland and many others have, this considerably affects rates in Germany and France,” he said.
Blanchflower said Greece’s failing economy is no new issue. They have been in default for 200 of the last 250 years and were ranked 99th in the World Bank’s ‘Doing Business Ratings,’ a global ratings committee that ranks economies on their ease of doing business. A low rating, as seen with Greece, suggests their economic environment is less conducive to the starting and operation of local firms.
Blanchflower attributes failures in Greece to the “lack of an operational tax collection system and required reform of essentially all labor markets,” and, more importantly, to their devotion to austerity and not growth.
In 2010 the British government experimented with austerity measures, according to Blanchflower.
“They cut spending and raised taxes, therefore banks aren’t lending, and no small firms can get credit,” he said. “The cuts depreciated national GDP.”
Blanchflower’s presentation challenged their beliefs regarding economic policy, according to freshman Sean Cogan.
“While I was aware that many European nations were attempting austerity, I presumed that expansionary fiscal contraction (major reduction in government spending), would create an environment for growth,” Cogan said. “Dr. Blanchflower’s comments were certainly interesting.
The failures in Europe motivated the United States to select a different path, according to Blanchflower. The United States government backed strategies for growth and is now exhibiting moderate, but positive economic expansion.
“The United States deferred paying off the deficit and is unsurprisingly enjoying reasonable growth,” he said.
Although the United States may still be enduring difficult economic times, according to Blanchflower, in comparison to our European counterparts, America is unquestionably comfortable.
For junior Diana Davis, Blanchflower’s lecture provided insight into the United States’ president’s economic policies.
“Dr. Blanchflower’s comments on the U.S. were surprisingly accurate and offer a strong message to those who question Obama’s economic policies,” Davis said. “Compared to the majority of the world, he’s done OK.”
Nevertheless, Blanchflower said the contrast between the United States and European nations demonstrates that the Eurozone crisis is not nearly close to an end.
Blanchflower was a member of the Bank of England’s Monetary Policy Committee from 2006 to 2009, and The Guardian newspaper named Blanchflower the Bank of England’s biggest dissenter. He was named “Business Person of the Year” in 2008 in the Daily Telegraph Great Britons of 2008 awards and was made a Commander of the British Empire in 2009.