Why Europe Is Right and Obama Is Wrong
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. The only problem is that this method of encouraging growth has not stimulated the US economy in recent years, but in fact has put it on a crash course.
Not even the financial sector, with its affection for cheap money, believes that this is the way to guide the United States out of the crisis. When the Fed recently announced a new version of its low-interest-rate policy, with the snappy name « Twist, » it led to a sharp decline in the stock market instead of the expected boost.
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.