350 Economists Warn President and Congress: Bad "Grand Bargain" on Deficits Could Kill Recovery

350 prominent economists issued a statement on Wednesday warning that "the fragile recovery is threatened by obsessive concern with cutting deficits that has infected both parties." The economists from universities and research groups across the U.S. and the world reminded politicians that the U.S. economy in the post-election period is still "marked by mass unemployment, rising poverty, and declining wages." And they warned that big spending cuts aimed at reducing deficits could throw the economy back into recession.

Their statement, called Jobs and Growth, Not Austerity, was written by Robert Borosage and Roger Hickey, co-directors of the Institute for America's Future and by Robert Kuttner, founder of The American Prospect.

The statement and signers can be found at jobsnotausterity.org.

In their statement, the economists hold up the cautionary example of European countries that have in plunged themselves into recession as a result of misguided policies aimed at reducing deficits: The economists declare, "As Great Britain, Ireland, Spain and Greece have shown, inflicting austerity on a weak economy leads to deeper recession, rising unemployment and increasing misery."

Conservative and corporate leaders, having gotten Congress to legislate the threat of draconian spending cuts and tax increases known as "sequestration," are now insisting that the only way to avoid this so-called "fiscal cliff" is to institute a "grand bargain" of unpopular spending cuts, benefit cuts in Social Security, Medicare and Medicaid -- and tax cuts for the rich -- that conservatives have been trying to win for decades. But the economists releasing today's statement caution that the elements of a bad "grand bargain" could have such a contractionary impact on the still-fragile economy that the US could sink like the European nations into another serious recession and a decade of high unemployment.

At a press conference today introduced by Borosage, the Jobs, Not Austerity statement was released with remarks by two of the signers, Robert Pollin, University of Massachusetts Economist and co-director of Political Economy Research Institute (PERI) and Teresa Ghilarducci, Director of the Schwartz Center for Economic Policy Analysis at the The New School.

Borosage said "the voters in this election told politicians exactly what these economists are saying: getting the economy growing and creating jobs is far more important than cutting deficits in this still-weak recovery. But we are also reminding the self-styled 'deficit hawks' that, as the statement declares, `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.'"

Teresa Ghilarducci said, "The debt burden is not the number `out of whack.' At 7.9 percent the unemployment rate is extremely high for this point in a recovery. The high deficits are driven by the long drawn out recession. The deficits will fall when the unemployment rate falls.

The Fed is doing all it can, we need more fiscal stimulus now, targeted on extending the emergency unemployment insurance, aiding state and local governments to stave off layoffs and to take advantage of low interest rates to fix roads, energy, and water infrastructure. Government spending during times of low inflation and high rates of unemployment pays for itself -- spending now creates demand so that the private sector has a reason to produce."

And Robert Pollin, author of the recent book Back to Full Employment (MIT Press) said, "With the U.S. still suffering from the worst sustained unemployment conditions since the 1930s Depression, our first priority has to be job creation. This will provide the greatest benefits to families, communities, as well as businesses who are waiting to see their local markets grow. Pushing unemployment down is also the single most effective way of reducing the fiscal deficit, since people with jobs pay more taxes and require less social assistance. Pursuing an austerity agenda now will threaten to reverse even the modest gains in employment we have experienced since the depths of the Great Recession. Austerity is exactly what we do not need now."