'Penny Wise and Pound Foolish': Democrats Urged to Reject Pivot to Austerity

Grassroots progressive groups on Tuesday urged Democratic congressional leaders to ignore Republicans, right-wing members of their own party, and neoliberal economists who are pushing lawmakers to hit the brakes on federal spending as inflation surges to levels not seen in decades.

"Pulling back on effective, popular investments will not solve the problems we face."

In a letter to House Speaker Nancy Pelosi (D-Calif.) and Senate Majority Leader Chuck Schumer (D-N.Y.), the ProsperUS coalition counters that such a "pivot to austerity" would only "make families poorer, increase unemployment, and cancel long-overdue, necessary, and widely-popular investments in our economy."

"Without further action, the economic gains we've made since we passed the American Rescue Plan will be erased," the coalition wrote, referring to a $1.9 trillion coronavirus relief measure that economist Larry Summers--who served as secretary of the Treasury Department during the Clinton years--has attempted to blame for rising inflation.

But ProsperUS--a diverse alliance coalition of labor, faith-based, small business, and policy organizations--argues "that "while rising prices are creating real harm for millions of families, it is increasingly clear that rising prices are the result of corporate greed and supply chain issues, not public spending."

To bolster its case, the coalition points to a recent analysis by the Economic Policy Institute's Josh Bivens, who contends that "the rise in inflation has not been driven by anything that looks like an overheating labor market--instead it has been driven by higher corporate profit margins and supply-chain bottlenecks."

"Policy efforts meant to cool off labor markets--like very rapid and sharp interest rate increases--are likely not necessary to restrain inflationary pressures in the medium term," Bivens concluded. "Other tools that would be less damaging to typical families--like care investments to boost expected growth in labor supply or a temporary excess profits tax--could be effective in tamping down inflation over the next year and should be a bigger part of the policy mix."

ProsperUS sent its letter as President Joe Biden's flagship Build Back Better package continues to languish in the U.S. Senate due largely to opposition from Sen. Joe Manchin (D-W.Va.), who has cited inflation and the national debt to argue against additional federal spending on green energy, child care, and other priorities.

In a statement on Tuesday, ProsperUS spokesperson Claire Guzdar cautioned that "choosing to veer away from investments that succeeded so incredibly in keeping families and the economy afloat over the last two years could derail our economic recovery altogether"--an assessment that economists have echoed, citing the consequences of austerity in the wake of the Great Recession.

"Starving our economy of these long-term investments," added Guzdar, "is penny wise and pound foolish and will lead to slower growth, fewer jobs, less revenue, and larger deficits in the long run."

As a cautionary tale, ProsperUS points to the expiration of the boosted Child Tax Credit at the end of last year. In January--the first month since June 2021 that eligible families didn't receive the monthly benefit--child poverty spiked by 41%, and subsequent survey results showed that Democrats are shedding support among families that have been cut off from the payments.

"Pulling back on effective, popular investments will not solve the problems we face," the coalition's letter reads. "As both polling and recent demonstrations remind us, people across the country are looking to Congress to build on the successes of the last year by delivering on care, climate, and good jobs. We urge you to act now to fulfill the promise of desperately needed federal investments--workers, families, and communities across the country are counting on you."