Washington is obsessed with the deficit, and fixated on austerity. Boehner, McConnell and a chorus of know-nothing fear-mongers raise the issues of debt and deficits as if they were an imminent and substantial danger. Obama is sabotaging the social safety net in order to get a “grand bargain” so we can shrink the deficit. The press can talk about nothing else. As a nation, we’re being held hostage to a series of “hold-our-breath-until-we-turn-blue” ultimatums, all because of the deficit.
Let’s be clear: the deficit is not our biggest problem right now. Climate change is. It isn’t even our biggest economic problem. A stagnating economy is. And—as the majority of economists have pointed out, and as the European experience clearly shows—austerity will only make our economy worse.
Yes, in a decade or so, if we do nothing, medical and retirement obligations will cause deficits to increase. But right now, the deficit is shrinking, and it is projected to keep shrinking until then.
Putting the long-term deficit ahead of the short-term economic stagnation we are experiencing is like putting money into a retirement account you won’t need for twenty years instead of fixing a massive hole in the roof of your house that’s letting in the rain. In short, it’s stupid.
Basically there are two ways to tackle the deficit. Grow our way out of it; or shrink our way out of it. In Greece, Spain, Italy, Portugal and Ireland we’re seeing the fruits of the “shrink your way out” strategy. Massive unemployment, decreased services, an overall smaller economy and at least for the short term, little or no effect on deficits due to reduced revenues.
On the other hand, here in the US, even with the modest economic gains we’ve experienced since Bush’s Great Recession, we are growing our way out of it.
Given this evidence, it is one of the great mysteries of the universe that Washington is obsessed with austerity. Well, actually, it isn’t. Republicans have been singing lead soprano in a bad musical written by self-interested fat cats and plutocrats like Pete Peterson, and Democrats and the press have been their willing castrato chorus for going on 30 years now. The real objective of the whole show? Killing off the remains of the New Deal and Great Society programs they love to hate.
But let’s get back to the real problems we face: a stagnating economy, and a climate in crisis. What if we could solve both with the same set of policies?
Well, we can.
To mitigate the worse effects of climate change we need massive investments in new energy and transportation infrastructure, a complete overhaul of our agriculture system, and dramatic improvements in the efficiency of our existing and new building stock. This level of investment would, in turn, kick start an economic boom, just as the transition to fossil fuels did more than a century ago.
First, mature industries like oil development and coal mining have done what every smart industry does – they’ve cut labor wherever they can, because labor is one of the most expensive aspects of production. That’s the main reason the number of jobs per ton of coal produced, for example, has plummeted over time. In fact, a variety of studies prove that clean energy investments produce more jobs per dollar spent and megawatt produced than investments in fossil fuels do. So investing in fossil fuel infrastructure is, on net, a job killer when viewed across the entire economy.
What’s this got to do with the deficit? To understand this, you have to understand why the economy tanked. Popular versions of this story attribute it to the collapse in housing prices and the cascading effect this had on consumers and securities. And while that’s true, fundamentally the real-estate collapse was only a symptom.
The real problem was that for most of America, wages had been stagnant for 30 years. As a result, consumers were bankrolling their lifestyle with debt and using the transitory and self-reinforcing equity bubble in real estate as an ATM. So, the root problems were flat wages and an over-leveraged market, both caused by deregulation.
And why were wages flat? Laissez faire policies favoring corporate interests over people’s interests. Things like anti-union laws, frozen minimum wages, tax subventions that encouraged the export of jobs to low-wage countries … the list is long and the tale of greed it tells, sad.
Trickle down was the ultimate dirty trick. An economy grows because consumers demand products. But with over 40% of our national wealth owned by only 1% of the population, and 80% of the people owning just 7% of the wealth, there weren’t enough consumers to fuel our economy. That was a key cause of our economic collapse in 2008; it’s the reason our economy is stagnating now; and it’s the reason austerity and trickle down won’t work. It’s the reason Obama’s acceptance of deficits as our most pressing problem and his search for a “Grand Bargain” is stupid economics, morally bankrupt and bad politics to boot.
But what if the demand for jobs – fueled by a complete overhaul of our economy to make it less carbon intensive and less destructive to the climate – increased dramatically? Well, then workers would have more leverage; wages would go up; demand for goods, products and services would go up; the economy would boom; tax revenues would go up; and the deficit would go down.
Oh, and by the way, we might just save civilization, as we know it.