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'Collusion With Austerity' Will Sink Obama, say Progressives
An 'elite bipartisan consensus' sends the bill for Wall Street’s mess to the middle class and the president has done far too much "playing along"
As the deadline of the so-called "budget sequestration" nears, progressives are warning President Obama that his obsession with giving credence to the "cut the deficit" antics of Republicans is a trap and that if Democrats don't jettison the failed "economics of austerity" immediately, they'll have no one to blame but themselves.
Richard Eskow calls it "Washington's Stupid, Destructive Game."
Robert Kuttner, his colleague at the Campaign for America's Future, names it "The Sequestering of Barack Obama," while The Nation's Katrina vanden Huevel says it's not the president, but "common sense" that's being locked up in Washington as Democrats systematically trade the proven economics of stimulus spending—which has so far saved the economy from ruin following its collapse in 2008—for the 'slash and burn' politics of the Republican party.
With the usual candor, Princeton economist and Nobel laureate Paul Krugman marked the whole debacle down last week as the "Sequester of Fools."
What these progressive voices have in common (in addition to acknowledging the ridiculous nature of the debate by Beltway establishment figures) is agreement that President Obama and the Democrats—far from winning a public opinion "blame game"—are sadly playing directly into the hands of a Republican Party hell bent on pushing an economic austerity agenda on the country at a time when the exact opposite course is needed.
And the chorus of alarm against the President's strategy—namely his willingness to cut programs like Social Security and Medicare while simultaneously embracing the flawed wisdom of budget cuts and deficit reduction—is growing.
As recently as today, in remarks made at a shipbuilding plant in Virginia, Obama said:
Now, the reason that we're even thinking about the sequester is because people are rightly concerned about the deficit and the debt.
But, according to economists, that's exactly "not right." That's exactly "wrong." And this is the problem.
Writing at The American Prospect, Kuttner explains:
Though too few Democrats will come right out and say it, there is a far better path to both economic recovery and eventual stabilization of the debt ratio. We need to increase public spending in the next few years, using both deficit spending and higher taxes on the wealthy, to get the economy back on a high-growth path. Taxes on the wealthy are better put toward public investment than to deficit reduction. Taxing the rich is far less of a hit to purchasing power than hiking taxes on working families, who spend nearly all of their disposable income. With a program of economic expansion, we can reach a stable long-term debt ratio, but at a higher level of economic output and a more broadly shared prosperity. The goal is economic recovery—and the recovery improves the debt ratio, not the other way around.
Among the economists in this camp are Nobel laureates Paul Krugman and Joseph Stiglitz, as well as Larry Mishel of the Economic Policy Institute, Dean Baker of the Center for Economic and Policy Research, James Galbraith of the University of Texas, and former Biden chief economist Jared Bernstein. In a recent article for the Economic Policy Institute, economists Josh Bivens and Andrew Fieldhouse observed that the “output gap”—the difference between what the economy is producing and what it is capable of producing—is now about a trillion dollars a year. If you cut the budget in such circumstances, you slow growth and get further away from stabilizing the debt ratio. The problem is that these people are not part of the conversation at the White House, which is a dialogue among Obama’s top aides, the corporate austerity-mongers, and Republicans, all of whom believe in deficit reduction.
At the Center for Economic and Policy Research, Dean Baker says the clear problem is that both parties have played into the idea that deficits are a problem when, in fact, the opposite is true.
"Rather than being a bad thing," Baker writes, "the deficit is providing a needed boost to the economy." And challenging the idea that deficit reduction will spur private spending, he adds: "There is no plausible story whereby private-sector demand will fill the gap created by a smaller deficit."
"Colluding in the politics of budget austerity has left Obama with no real capacity to offer the public investment that the economy needs for a robust, broadly-based recovery, and leaves him with the prospect of a weak economy between now and the end of his term–unless he drastically shifts course and repudiates the entire view of the budget and the economy." -Robert Kuttner
Robert Reich, UC Berkeley economist and former labor secretary, argues that unless Obama and the Democrats confront the two-headed lie of "austerity economics and trickle-down economics" pushed daily by the GOP, "the nation will continue to careen from crisis to crisis, showdown to showdown."
The problem is not deficits, according to Reich, but "too few jobs, lousy wages, and slow growth." He continues, "Cutting the budget deficit anytime soon makes the problem worse because it reduces overall demand. As a result, the economy will slow or fall into recession – which enlarges the deficit in proportion."
If you want proof, says Reich, just look at what austerity policies have done to economies across Europe.
Yet, as vanden Huevel writes, "most of Washington — from the newly reelected Democratic president to the self-described insurgent Tea Party Republicans — is ignoring this reality to focus on cutting deficits." She writes:
The Republican Congress seems intent on letting the “sequester” take place — the idiotic across the board cuts that were explicitly designed to be anathema to both parties. Senate Democrats call not for repealing these cuts, but for “paying for” delaying them for a few more months.
Why this fixation? Deficits aren’t careering out of control. In fact, as the Congressional Budget Office reports, in relation to the economy, the deficit has fallen faster over the past three years than at any time since the demobilization after World War II. Calls for cutting Medicare benefits ignore the reality that the slowing rise in Medicare costs has already cut about $500 billion from its projected costs over 10 years compared to estimates made two years ago.
Meanwhile, Kuttner argues that by playing into the GOP's mantra on 'cutting deficits' as a legitimate strategy, Obama has "miscalculated both the tactical politics of the sequester and the depressive economic impact of budget cuts on the rest of his presidency."
Long term, colluding in the politics of budget austerity has left Obama with no real capacity to offer the public investment that the economy needs for a robust, broadly-based recovery, and leaves him with the prospect of a weak economy between now and the end of his term–unless he drastically shifts course and repudiates the entire view of the budget and the economy.
And later notes:
As the Greeks have painfully learned over and over again, you can cut spending and raise taxes, and the deficit just keeps growing larger—because you are destroying your economy. The same has been demonstrated for Spain, Portugal, and Britain. Something similar occurred on a more modest scale in the fourth quarter of 2012 right at home.
And George Lakoff, professor of linguistics and political analyst, says that until Democrats confront the GOP's moral stance—one that actually favors the pain imposed by austerity—the Democrats and Obama continue to miss an opportunity to discuss the "heart of the problem" that undergirds the ongoing series of fights over the economy. What that demands, says Lakoff, is a vocal challenge on the part of the Democrats and progressives to address the "moral divide at the heart of our public life."
"Whether they know it or not, those pushing for smaller deficits are promoting less growth and more unemployment." - Dean Baker, CEPR
Taking a deeper look at Republican intentions, Eskow says the ongoing debate amounts to a "hostage crisis" in which austerity economics is being forced on "an unwilling population – [cloaked] in a false debate about how to do it, not about why we shouldn’t do it at all."
And to Republicans, argues Kuttner, it hardly matters if the fight now hurts them in the short term, when their eyes are fixed on 2014 and 2016 when few voters will likely remember the current series of events.
"An austere budget slows the recovery and leaves the Democrats with no economic bragging rights going into 2014 and 2016," he writes.
But would the GOP be so cynical as to trash the economy for political gain? Yes, says Kuttner, before concluding that in upcoming election cycles: "nobody will much remember who was more at fault in the sequester battle of early 2013. The voters will be looking at their own economic situation, and it won't be pretty."
And as Baker concludes: "Whether they know it or not, those pushing for smaller deficits are promoting less growth and more unemployment. It would be the best possible outcome of the sequester debate if this simple point could be made in polite circles in Washington again."
But it's not to be. As vanden Huevel laments:
This elite consensus ignores how we got into the fix we are in. The deficit was under 2 percent of gross domestic product in 2007 and the debt under 40 percent of GDP when Wall Street’s wilding blew up the housing bubble and drove the economy into the Great Recession. Wall Street got bailed out, but the deficit soared to 11 percent of GDP and Americans lost nearly 40 percent of their wealth. You’d think anyone so fixated on avoiding another Pearl Harbor moment would focus on making certain Wall Street was properly shackled, and the too-big-to-fail banks broken up.
But the elite bipartisan consensus is focused on sending the bill for Wall Street’s mess to an already battered middle class, by weakening the basic pillars of a family’s economic security — Social Security, Medicare and Medicaid. And they are a lot closer than anyone thinks. The sequester is just the first of a series of austerity bombs that the Republican Congress will use to extort cuts in these benefits.
It’s time to stop such extortionists from holding our country’s economic future hostage.
The most notable hostage of the austerity trap, however, seems to be President Obama himself. And unless he changes course soon, his critics say, it will be more than his legacy that gets sunk.