Austerity Pressures Compared: Japan, Euro and U.S.
By Elliott R. Morss, Ph.D.
NEW YORK (
) -- Japan, the U.K. and the U.S. have their own central banks; they can "print money" whenever they want. And they have been printing a lot of money. The governments of Eurozone countries are different. They don't have central banks and can't print money. They must depend on revenues and what they can borrow.
As
, both Greece and Ireland got to a point where borrowers were reluctant to lend them money. This prompted structured bailouts by an EU/IMF partnership. I speculated that additional bailouts might be needed for one or more of the following: Italy, Belgium, France, Spain and/or Portugal.
Then there are the 50 states in the U.S. They operate under the most severe austerity restrictions in that all but Vermont are required to balance their budgets annually.
Consider first a comparison of nations. Table 1 provides data on countries with and without their own central banks. Ireland's deficit will be lower than these projections because of the EU/IMF austerity program restrictions.
Consider now states in the U.S. and how they compare to the Eurozone countries. Remember that austerity restrictions in the states are most severe: they must balance their budgets annually. The deficits shown for them in Table 2 are the budget gaps they were forced to close. Table 2 compares the largest states with EUR countries.
Overall, the Center on Budget and Policy Priorities estimates that states in the U.S. had shortfalls of $110 billion and $192 billion in 2009 and 2010, respectively. They are projected to have shortfalls of $180 billion and $120 billion in 2011 and 2012. These shortfalls can only be closed via expenditure cutbacks, tax increases, or Federal aid.
The Center estimates that approximately $140 billion of the American Recovery and Reinvestment Act went to states, mostly in the form of increased Medicaid funding. However, most of this funding has been depleted, and there is no further support for them in the Obama/Republicans' tax proposal.
The Center estimates that state cutbacks will reduce GDP by 1%.
Table 3 lists the 10 states with largest budget gaps in 2010.
By Elliott R. Morss, Ph.D.
Elliott Morss is an economic consultant and an individual investor in developing countries. He has taught at the University of Michigan, Harvard University, Boston University, among other schools. Morss worked at the International Monetary Fund and helped establish Development Alternatives Inc. He has co-written six books and published more than four dozen articles in professional journals.