There is something seriously off about the mission of the new Treasury secretary, Jack Lew, to Europe. Secretary Lew has been visiting European capitals to persuade leaders there to ease up on the austerity. He has not had a good reception.
Speaking at a joint press conference with the chagrined Lew in Berlin, Wolfgang Schauble, the German finance minister and uber-austerity enforcer, dressed down Lew thusly: “Nobody in Europe sees this contradiction between fiscal consolidation and growth.”
Nobody among the elite, that is.
Ordinary people in Greece, where output has declined by nearly 25 percent since the austerity tonic began, surely see the contradiction. So do young people in Spain, where the youth unemployment rate has reached 56 percent.
Even if the cure should eventually work—which it won’t—we will have lost a whole generation. Only in the rarified power precincts of Brussels and Berlin is austerity “working.”
But Jack Lew doesn’t exactly come to this mission with clean hands. He is one of the principal architects of austerity in the Obama administration.
Lew pushed austerity in his previous jobs as White House chief of staff and as Office of Management and Budget director. And even as Lew was trying to persuade the Europeans to lighten up, his boss, the president, was unveiling an austerity budget at home. No wonder the Europeans didn’t take him seriously.
Here’s part of what Lew told the Germans in Berlin: “The driver for economic growth will be consumer demand, and policies that would help to encourage consumer demand in countries that have the capacity would be helpful.”
Well, yes. Lew was referring to Germany, but he was also describing the United States. But the president’s widely leaked budget proposals, egged on by the likes of Lew, will sandbag consumer demand. It will especially cut Social Security and Medicare, reducing the consumer purchasing power of the elderly.
The backdoor method of cutting Social Security via reducing the annual cost of living adjustment, is both sneaky and misguided. The fact is that the elderly face higher inflation than the rest of us because more of their outlays are in health care, a sector where costs are inflating at well above the general inflation rate. And the supposed efficiency gains in Medicare are often just cost-shifting to the consumer—another hit on the purchasing power of older Americans.
Lew’s European misadventure is an epic case of "do as I say, not as I do." Perhaps when Lew returns from his not terribly successful whirlwind tour, he can advise his president on just how austerity doesn’t work.