It’s being widely reported that a continued, or accelerated, EU economic crisis could threaten President Obama’s reelection.

It’s certainly true that, in this increasingly globalized world (!?), the European crisis could impact the American economy, and through that, President Obama’s reelection.

But that’s an outcome, not a cause.  The cause is Obama’s mishandling of our economy in the first place, to the point that it’s so enormously vulnerable to the European downturn.

That mishandling is a…misunderstanding…of the type of growth that’s needed.  What President Obama and many of his EU counterparts pushed for at the just-concluded G-8 summit is growth in government spending and borrowing—and in Obama’s case, growth in tax rates—under the rubric of stimulating an economy.

On the other hand, we have Christina Romer (that Christima Romer) and David Romer demonstrating in a 2010 American Economic Review article (login required; sorry) the powerful effect of increasing tax rates on economic growth: an increase in taxes of 1% of GDP lowers GDP by nearly 3%.

And we have Swedish economists Andreas Bergh and Magnus Henrekson in a 2011 Journal of Economic Surveys article (again, login required; sorry again) concluding that a 10% increase in government size (relative to GDP) is associated with a 0.5%-1.0% lower annual growth rate in the economy.

Plainly, the answer, as I’ve been arguing lately, is smaller government and lower tax rates, to produce economic growth.

Economic, not government, growth.  Now that’s growth we can believe in.

That’s the claim made by Hannes Swoboda, an Austrian MEP and President of the Progressive Alliance of Socialists and Democrats in that European Parliament, in a recent Wall Street Journal op-ed.

Mr Swoboda said about German reluctance to support continued excessive government borrowing:

Should companies that seek to grow not be allowed to take out loans anymore?  Should states, in order to fight recession and unemployment, not assume debt?

The first, of course, is little more than a disingenuous red herring.  Companies are not governments.  When a company (spends and) borrows too much and cannot repay, only the company’s investors and creditors, and in the most extreme cases the company’s employees, lose.  When governments (spend and) borrow too much, it is that polity’s taxpayers…well, we’re seeing the results of this sort of government irresponsibility play out today in Greece, California, Illinois, the United States as a whole.

…austerity politics and…their antisocial character, proven by record unemployment figures.  The collapse of some governments…notably in France and Greece…further demonstrate the political danger.

Of course generations of dependency on, and addiction to, government handouts don’t have anything to do with the pain of the forced withdrawal that results from these governments’ having run out of OPM.  Not a bit of it.  In fact, though, the only real, long-lasting political danger is to the political incumbents who find at risk their ability to keep the handouts coming and the capacity of the resulting dependency to preserve their power.

Then Swoboda (to coin a phrase) doubled down.

The fact that the current recession was preceded by a decrease of public investment in measures and policies that produce growth and employment clearly indicates that these must be the starting point of an alternative strategy.  In the evaluation of national budgets,…[e]xpenditures for these purposes should not be integrated in calculations of structural deficits….

Italian Prime Minister Mario Monti has already called for policies that favor targeted public investments in growth and employment.…

We actually need to go a step even further. … The European institutions should enact legislation that requires all members to make public investments in growth and employment.

Those public investment measures are nothing more than the repeatedly failed Keynesian policy of “stimulus” spending at the expense of necessary fiscal discipline.  In fact, the current European recession also was not preceded by an increase in private investment—because the money wasn’t available due to excessive taxes and high government spending and borrowing for those dysfunctional spending and borrowing efforts.

Moreover, any remaining government expenditures, including any Keynesian “stimulus” (is there any serious economist who still thinks stuff is sound economics?), must strictly be on the books and in the public’s view.  If Swoboda thinks his policies are so wonderful, why does he demand to hide them behind locked doors and in the secrecy of off the books crony deals?

Finally, Mr Swoboda, not trusting the people to make their own personal and business decisions, demanded to codify in international law a permanent government interference with the market place.

No.  The answer to Europe’s—and the United States’—problems are for government to get out of the way of the private economy.  To get out of the way of the flower of individual ingenuity and out of the way of the collective wisdom of private citizens.

Mr Swoboda had more fanciful claptrap, but you get the idea.  One can only hope that we get the idea this fall.

The outcomes of the Greek and French elections last week, serve to emphasize a perceived, and real, need for economic growth.  That need exists in the US, also; those elections serve to highlight our need, as well.

But what kind of growth is intended?  Carsten Volkery hints at the version preferred by the Left in Europe (and, I submit, it’s a view shared by our Progressives, here at home; accordingly, I’ll just write about Europe in this post and incorporate our Progressives by extension).

Volkery opens his description of the Left’s version of growth this way.

[The European fiscal pact, an effort at national budget discipline] will, however, be augmented by a separate “growth pact.”  It is currently unclear just what form this growth pact will take.  But it seems safe to assume that it will not be particularly ambitious—European leaders want to stimulate the economy without putting too much strain on their budgets.  Massive debt-financed investments are still regarded as a taboo. Additional transfers from the wealthy north to the impoverished south also seem unlikely.  It is, in short, unclear if Europe can even afford growth.

Stimulate the economy through their budgets.  Can Europe afford growth?  I.e., more government spending of some sort.  Volkery then suggests some ways to achieve this greater spending, this “growth.”

Relax the austerity targets…domestic demand would benefit….

But this Keynesian adherents’ conflation of a government-fueled artificial demand with the true economic demand of a nation’s private economic participants—the citizens and their businesses—has already been proven to result in failure to stimulate anything beyond growth in government: here in the US in the 1930s and again in the years since 2008, and in Europe in that same post-2008 era.

Cheap money from the ECB…cut interest rates further, which would stimulate demand.

The US Fed has been holding interest rates artificially low, to the point of going negative in real terms, for years.  No demand stimulus has resulted.  Further, cheap borrowing still is more debt, the wrong answer for an economic dislocation caused by too much borrowing.

Structural reforms…liberalizing the labor market, increasing the retirement age and reducing barriers to trade [to] increase competitiveness, and…stimulate the economy.  Such reforms only have one problem: they don’t help much in the short term.

This is true enough, but it’s not an argument to not implement the reforms; it’s an argument to stop dithering about them, and get them in place.  As the reforms take effect, government’s intrusion into their citizens’ lives will be reduced, they’ll have more room for their own decisions—and more money with which to act on those decisions.  More true economic demand.

EU investments: These could take different forms.

And every one of them amounts to increased government spending, increased government borrowing, or increased government selection of business winners and losers, or all three.

No, the only growth each of these various plans for increasing government spending and borrowing can stimulate is in the size of government’s debt and the size of government and its intrusion into the lives of men and women.

To truly stimulate growth in economies, what is needed is not budget discipline through reduced government spending and increased taxes, but budget discipline through reduced government spending and reduced taxes on a broadened tax base, and reduced government borrowing.  Most especially, there’s no room for increasing (again) government spending or borrowing.

The more money that is left in the hands of the people who’ve earned it, the more freedom those people will have to set their own goals, to develop their own ideas, to do their own innovation, to form their own small businesses—and to hire even just one or two or three others to work in their businesses.  In the aggregate of all these burgeoning small businesses is the growth of employment—with even more money in the hands of those earning it.

The less government competition for goods and services—and labor—the lower prices will be, and so the money left in the hands of those earning it will go farther—further stimulating economic growth.  Yes, those lower prices will impact those small businesses, but those lower prices will impact  their supply prices, too.  The businesses will thrive with the growing demand from that increase in money and decrease in prices—costs.

There’s another effect from reduced government spending that’s often overlooked.  Government spending often serves to substitute for individual spending: why should a person buy this or that good or service, if government is going to buy it for him?  Less spending reduces this substitution effect, putting the money back into the private economy where it belongs.

With more people having skin in the game—from everyone being taxed, for instance, even at those reduced rates—more people will play an active role in their own lives and in the politics that, ultimately, structure their lives.  This is entirely appropriate.  A free people must be politically active, or they lose their freedoms.  Pericles and Plato were right on this.