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Today's Top News
Chorus of Warnings Grow: 'Say No to US Austerity'
As politicians debate "fiscal cliff" economist say policy mistakes would harm most vulnerable and enormously damage fragile recovery
As President Obama and Washington lawmakers embarked on fiscal negotiations to address federal budget concerns and the impacts of a stubborn economic recovery, nearly 350 prominent economists, under the banner "Jobs, Not Austerity," issued a statement warning that the "obsessive concern with cutting deficits that has infected both parties” is a serious threat to making sound economic policy decisions in Washington.
The signatories to the statement—hailing from universities and research groups across the country and the world—joined a growing chorus of others who are eager to convince US politicians that "austerity-style" policies—like the ones which have decimated the European economy in recent years—are the exact opposite of what sound economics would prescribe. The US economy in the post-election period is still “marked by mass unemployment, rising poverty, and declining wages,” said the group and warned that big spending cuts aimed at reducing deficits could throw the economy back into recession.
"Too many in Washington are fixated on cutting public spending to balance the budget, not on how to put people back to work and get our economy going," read the statement. "There is no theory of economics that explains how we can deflate our way to recovery."
"Voters in this election told politicians exactly what these economists are saying," said the Campaign for America's Future's Robert Borosage, one of the authors of the statement. "Getting the economy growing and creating jobs is far more important than cutting deficits in this still-weak recovery," he said.
In a series of policy proposals that buttress such arguments, the Economic Policy Institute on Friday released a new report titled 'Investing in America’s Economy: A Budget Blueprint for Economic Recovery', a budget plan the group says prioritizes economic recovery while also putting the country on a sustainable budget path over the long term.
“This proposal demonstrates that addressing the fiscal cliff can and should be done by boosting job growth; plans that would take a different approach by cutting benefits or engaging in austere spending reductions would have a negative effect on our recovery,” said EPI's Rebecca Thiess.
Robert Pollin, University of Massachusetts economist and co-director of Political Economy Research Institute (PERI), in comments accompanying the economists' joint statement, said, "Austerity is exactly what we do not need now.” Such an agenda, he said, would likely reverse even the "modest gains" the economy has made since the onset of the Great Recession in 2009.
In Washington, Senator Bernie Sanders (I-VT) is leading the charge among lawmakers to ensure that key social programs are protected against the austerity-minded arguments of 'deficit hawks,' including CEO's of major US corporations and those calling for a "Grand Bargain" that would see drastic cuts in social programs in exchange for modest revenue increases. On Thursday, Sanders led a press conference with other progressive members of Congress who vowed to protect Social Security, food stamp programs, Medicare, and Medicaid.
"We're going to send a loud message to the leadership in the House, in the Senate and President Obama. Do not cut Social Security, do not cut Medicare, do not cut Medicaid," Sanders said. "Deficit reduction is a serious issue but it must be done in a way that is fair. We must not balance the budget on the backs of the elderly, the sick, the children or the poor."
Citing the results from last week's national elections said last week’s election, Sen. Tom Harkin (D-Iowa) said the American people spoke very clearly about the two very different visions being offered for the economy. "When it comes to Social Security, Medicare, and Medicaid, the American people told us to protect and strengthen these programs, not cut them,” Harkin said. who chairs the Senate Health, Education, Labor & Pensions Committee. “In the coming weeks and months as the Senate works to create jobs, strengthen the economy, and reduce the deficit and debt, we will stand firm against any misguided effort to cut these programs that undergird the middle class.”
In his Friday column at the New York Times, economist Paul Krugman was incredulous about austerity proposals like raising the eligibility age for either Social Security or Medicare. Doing so, he said, "would be destructive, making Americans’ lives worse without contributing in any significant way to deficit reduction."
Krugman was particularly angered by Democrats who might be considering such proposals and said they "need to ask themselves what on earth they think they’re doing."
In terms of alternative and progressive economic solutions—and in addition to simply stopping the negative impact of unnecessary and harmful cuts to key social programs—the EPI plan announced Friday included following five guiding principles:
- Create jobs now. The main obstacle to economic growth continues to be a huge shortfall in aggregate demand. This shortfall is driven by insufficient spending by households and businesses, spending that pulled back in the aftermath of a housing bubble that wiped out trillions of dollars in household wealth and froze residential and commercial construction. Therefore, boosting aggregate demand with deficit-financed fiscal stimulus remains the most effective policy lever for addressing the jobs crisis. Long-run fiscal sustainability is more difficult to achieve when a long-term jobs crisis has caused people to defer or forgo educational attainment, poverty and malnutrition to rise, human capital to atrophy, business to refrain from investing and physical stock to depreciate from disuse.
- Let the Bush tax cuts expire. The Bush tax cuts have already added more than $3 trillion to the national debt and will add another $4.3 trillion over the next decade, if extended. They should fully expire on schedule, and to alleviate the impact of their expiration on lower- and middle-income households, refundable tax credits should be consolidated and expanded. Specifically, a work credit and a family tax credit should replace the personal exemption, standard deduction, and Earned Income Tax Credit and Child Tax Credit.
- Preserve and strengthen the social safety net. Benefits should not be reduced. Instead, the safety net on which millions of Americans rely should be strengthened by expanding unemployment compensation, eliminating the payroll tax cap to solidify Social Security’s finances, and attaining long-run efficiency savings and cost containment in the provision of health care.
- Return fairness and progressivity to the tax code. Taxing wealth the same as ordinary income, reinstating more progressive estate tax parameters, adding new tax brackets on taxable income over $2 million and enacting a net wealth tax would reverse the weakening of the progressivity of the tax code that has occurred over the past few decades.
- Tax goods and services that have significant social costs. Pricing carbon emissions, taxing financial transactions and leverage, and levying taxes on products that pose public health risks would compel businesses to internalize costs that would otherwise spill over to society.
“This plan is gimmick-free,” Pollack said. “We don’t shift costs onto middle-class households or the elderly and disabled, and we don’t produce savings by cutting vital investments in the nation’s infrastructure, education or innovative capacity. We achieve fiscal sustainability by investing in future generations and ensuring that the highest-income households—who have benefited most from economic growth over the last few decades—pay a little more to help contribute to our continued prosperity.”
Public support is also on the side of these anti-austerity voices with poll after poll showing unquestionable support for the safety net programs and bi-partisan support for raising taxes on the nation's wealthiest. More than 130,000 Americans have signed on to a petition opposing cuts in Social Security, Medicare and Medicaid. The petition is on Sanders’ Senate website and also online at the Social Security Works website and MoveOn.org.
Here's Bernie Sanders in a recent appearance on MSNBC's The Ed Show, saying the American people overwhelmingly, and regardless of party affiliation, support progressive economic solutions:
Read the full Economic Policy Institute's report here.
The complete text of the letter from the "Jobs Not Austerity" economists follows:
The U.S. economy, once in free-fall toward a new depression, has begun to recover. But we are still mired in a prolonged slump marked by mass unemployment, rising poverty, and declining wages. And the fragile recovery is threatened by obsessive concern with cutting deficits that has infected both parties.
As even Federal Reserve Chairman Ben Bernanke recognizes, it is long term unemployment, not excessive deficits or debt, that is now inflicting the greatest human toll and economic damage. Polls show that voters agree joblessness and a bad economy are much higher priorities than deficits.
Yet too many in Washington are fixated on cutting public spending to balance the budget, not on how to put people back to work and get our economy going. There is no theory of economics that explains how we can deflate our way to recovery. Businesses are not basing investment decisions on how much Congress cuts the debt in 2023. As Great Britain, Ireland, Spain and Greece have shown, inflicting austerity on a weak economy leads to deeper recession, rising unemployment and increasing misery.
In a deep recession, deficit reduction is a moving target. If you cut spending and consumer purchasing power in an already depressed economy, unemployment rises and revenues fall — and the goal of a smaller deficit keeps receding like a mirage in a desert. When private purchasing power is depressed by the aftermath of a financial collapse, only public investment can make up the gap.
The budget hawks have the sequence backwards. Public outlay for jobs and recovery come first, growth is restored, and revenues follow. Budget cuts in a deep slump lead only to a deeper slump.
The government should invest in areas vital to our economy — to repair crumbling infrastructure, to build 21st-century smart-grid, public transportation and renewable energy systems, and to create public and private sector jobs. We should also help states prevent layoffs of teachers and other public servants, make early care and higher education more affordable, and create public service jobs throughout the nation. It can do so by borrowing at record low interest rates. We can also stimulate recovery without increasing deficits by increasing taxes on the wealthy and pumping the proceeds directly into the economy.
Both bipartisan and conservative deficit reduction plans — Simpson-Bowles, Rivlin-Domenici, and the Republican budget — magically assume a recovery to "normal" levels of employment. Yet, the economy is nowhere near normal growth, and budget cutting will only retard growth. At the end of the year, we face a congressionally-created "fiscal cliff," with automatic "sequestration" spending cuts everyone agrees should be stopped to prevent a double-dip recession. That threat has led to backroom negotiations, backed by a multimillion dollar public relations campaign, toward a "grand bargain" that would maintain tax give-aways for the rich; cut Social Security, Medicare, and Medicaid; and impose new, job-killing spending cuts. This is no bargain, and it should be rejected.
President Obama should be commended for proposing a new jobs program. But unless the balance of power in Congress changes dramatically, there is a serious danger that after the election the austerity lobby will prevail.
We need jobs first. With recovery, deficit reduction will come of its own accord thanks to increased revenues in an improving economy. That was the case in the three decades after World War II — when the debt to GDP ratio declined from over 120 percent of GDP in 1945 to under 30 percent by 1978.
In 1945, our leaders placed a priority on putting people to work, not cutting spending. So government doubled down with public investments like the GI bill, housing, and highways — and widespread collective bargaining and equal opportunity laws made sure the rewards of growth were widely shared. Today, we need the same scale of public investments that made sure the greatest generation and their children enjoyed growth, opportunity, and shared prosperity.
In the face of today's weak economy, the Federal Reserve has vowed to sustain extraordinary measures until unemployment comes down and the economy picks up. But as Chairman Ben Bernanke observed, very low interest rates alone cannot fix this economy. To make sure the American people are not crippled by another lost decade of joblessness, we need presidential leadership — and congressional action — to spur jobs and growth, not dangerous austerity.