Spain Struggles Against the Keynesian Current
Mariano Rajoy, Prime Minister of Spain, addresses supporters in the 2011 electoral campaign
Photo Credit: Wikimedia Commons/manulqsa
After the success of the Leave side in the Brexit election last Thursday, we were treated to even more news Sunday about rebellion against EU economic policies. The welcome news came from Spain in a national election where the Spanish increased the parliamentary strength of the center-right Popular Party (PP), lead by Prime Minister Mariano Rajoy. Six months ago, The Spanish election that put Rajoy in power had failed to give any party a majority. This time around, the Spanish increased PP’s seats in the parliament, called the Congress of Deputies, from 123 to 137. This is still shy a majority of the 350 members, but the election does demonstrate some degree of approval for PP policies, and a rejection of the policies of the left-wing Podemos party.
The Socialists were in second place with 85 seats, keeping the third-place Podemos movement with 71 seats from becoming even the largest Left-wing party in the Congress of Deputies. The fact that Podemos ended up so poorly was counter to what opinion polls were showing, leading some to believe they might even snatch power away from the PP. It seems opinion polls are suffering everywhere, not just in the U.S. and in the U.K. However, lacking a majority, Rajoy must still cobble together a coalition to rule, which may be easier said than done.
Nevertheless, the election still represents a degree of approval of PP’s anti-Keynesian, supply-side economic reforms. Going against the Keynesian advice of Brussels and Washington, Rajoy and the PP have cut government spending, cut and simplified taxes, and liberalized labor laws to make it easier for companies to hire and fire workers. The salutary results should be a lesson not merely to the European Community, but to the United States as well. The PP’s neoclassical economic policies have turned Spain’s economy around, causing it to grow 3% over the past two years and 3.2% over the past year, according to the EU’s statistical agency. Meanwhile the unemployment rate has fallen from a peak 26% to a still horrendous 22.7%. Compare this with a 1.7% growth rate for Germany last year and 1.3% for France.
The fact that Spain can find economic growth greater than 3% by cutting taxes, expenditures, and government economic regulation should give the lie to the Keynesian excuse of Secular Stagnation (see the posts The Keynesian Excuse: Secular Stagnation and What to Do About Keynesian Secular Stagnation). It is not free-market failures dooming us to slow growth. It is government failures that are weighing us down.
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