International Dominoes

"No man is an island, entire of itself." -- John Donne

   Watch for a European domino to topple the American economy. That's no guarantee, of course, but consider these news items:
   -- Ireland officially entered recession for the second time in three years, after recording negative GDP for two consecutive quarters.
   -- The 17 nations that use the euro as a common currency had a combined drop in output of 0.2 percent, and the 27 nations of the European Union as a whole showed a decline of 0.2 percent.
   -- The economy of the euro zone has been receding for a year.
   -- England is pushing for a stronger austerity program.
   -- Germany wants those member nations in difficulty to spend less.
   -- Greece is effectively bankrupt.
   -- Spain and Italy are suffering.
   -- France is on the edge.

   And those are all first quarter items. Data for the second fiscal quarter, which ended today (June 30), very likely will carry more ill tidings.
   Like it or not, the world economy is interlinked. Austere measures to reduce spending in one region can only drag down sales in another area. So if austere policies gain in Europe, that means fewer imports from America. And that principle applies on every level. If townsfolk switch from buying bread from a family-owned baker to a supermarket chain, the small bakery goes out of business.
   If restaurants switch to California wines from French imports, international trade suffers. If they switch again to less expensive New York State vintages, California wineries lose revenue.
   Moreover, if the restaurant's customers don't care for the new wine list, they go elsewhere, and the restaurant loses business.
   And if, in the name of austerity, people stop going out to dinner, many people suffer -- the restaurant closes, and staffers are out of work.
   As economist Paul Krugman so succinctly put it, your spending is my income, and vice versa.
   Theoretically, austerity works -- but only when it's practiced by one population unit, whether an individual, a family, or a nation. But because of the spending/revenue tradeoff, austerity doesn't work when everybody does it.
   It can't.