Economic Outlook: Push comes to shove

The adage: when the people take charge, the politicians will follow, sounds fairly reasonable when the people are not really, really angry.

At least that's the premise. And the second part of that is to note that people are not so angry when they run up against opposition; they are really, really angry when they run up against opposition that refuses to listen.

In the recent Greek elections, Golden Dawn, a neo-Nazi political party won 7 percent of the vote, which has scared up more than a few reactionary columns, such as this one.

Let's just say, premise No. 3, that this development infers that 93 percent of voters in Greece continue to feel at least some faith in their political leaders -- even the ones who insisted that Greece tow the line on austerity measures in the face of an economy that was crumbling.

With exquisite timing, International Monetary Fund Managing Director Christine Lagarde said Monday that, "Clearly, today's global economy needs higher and better growth. Getting there depends on choosing the right combination of policies. With the wrong choices, we risk losing a decade of growth, a generation of young people, and an opportunity to put the global economy on a secure footing."

This is a classic example of the vague-specific, which means Lagarde knows exactly what she is talking about, even though others may be perplexed.

"Today's economy needs higher and better growth," means it is time for governments to stimulate their economies with spending. "Getting there depends on the right combination of policies," means "I don't mean to offend those who pushed for austerity-based strategies; after all, it seemed right at the time."

The "risk of losing a decade of growth," is, of course, moot. Economists don't usually predict economic output that far ahead, but the Great Recession has already put a serious dent in half a decade of growth, so it is reasonable to assume five more years of sluggish growth is possible. And then there's that phrasing of "secure footing." This is another reference to austerity budgets, which are designed to instill investor confidence in countries where government debt feels overwhelming. Get a "secure footing" on that debt, the theory goes, and the thrill of (investors) taking risks will blossom again.

At this stage in a recovery, however, there is mounting doubt on the likelihood that anyone will enjoy the risks of investing in progress in the near future. Corporations are sitting on mountains of cash, but nobody is hiring. Stock prices have doubled since their March 2009 trough, but trade volumes are about half of what they used to be.

Monetary policy has been extremely "loose," to use Lagarde's term. In other words, central banks are handing out money with historically low interest rates, but "these are not normal times," she said. These "loose" policies have not sparked inflation.

Lagarde also called for labor reforms, not to dismantle unions, but to straighten out disparity in the eurozone. She put the onus on Greece, Spain, and Portugal. Reform is needed "Especially in the countries of Southern Europe that have lost competitiveness relative to their trading partners," she said.

Theory No. 4 is that Lagarade can be more candid than those who rely on elections to keep their jobs. She can set the stage for other leaders to follow.

On Monday, she called for policies that were "good for stability and good for growth."

And here's the rub: The widespread belief is that governments cannot cut back on spending and increase spending at the same time. But the truth is, that is exactly what they can do. They cut back on spending that has the least return and increase spending where it has the most return. That concedes going too fast on austerity budgeting is not wise. With 200 million people out of work across the globe, "This is a potential disaster -- in economic, social, and human terms," Lagarde said.

In international markets Tuesday, the Nikkei 225 index in Japan gained 0.69 percent, while the Shanghai composite index in China lost 0.12 percent. The Hang Seng index in Hong Kong slid 0.25 percent, while the Sensex in India lost 2.17 percent.

The S&P/ASX 200 in Australia added 0.3 percent.

In midday trading in Europe, the FTSE 100 index in Britain shed 0.25 percent, while the DAX 30 in Germany dropped 0.59 percent. The CAC 40 in France lost 1.48 percent, while the Stoxx Europe 600 lost 0.46 percent.