September 12, 2012
-- by Dave Johnson
You might be hearing about the "Fiscal Cliff." And you might be hearing about a "Grand Bargain." You certainly have heard about "Simpson Bowles." You will be hearing more and more about these strangely-named things because the usual suspects are cranking up the usual propaganda machine again, getting the usual DC elite ready to play out another of the usual take-from-the-people-to-give-to-the-rich games right after the election. This time it's a push for austerity.
I always start any discussion of deficits and debt by reminding people that the country had a big budget surplus before Bush cut taxes for the rich, and doubled the military budget.
Deficit history: Reagan dramatically cut taxes on the wealthy and corporations. He doubled the military budget. Huge deficit resulted and the country began accumulating massive debt. They called it "strategic deficits," a plan to "starve the beast" by bankrupting the country and forcing cuts to government, to the things government does for We, the People, and the ways government protects us from exploitation by the wealthy and powerful.
After 12 years of Reaganomics people were fed up, and elected Clinton. Clinton raised taxes on the rich. Those increases combined with the stock market bubble created a surplus and we were paying off the debt, and then something changed. 'W' Bush again cut taxes for the wealthy and again doubled the military budget and now the deficits are enormous. So here we are.
But fixing what caused the deficits is not on the table. It never is, because that doesn't fit the plan.
They say the country faces a "Fiscal Cliff" at the end of the year. After the election the Bush tax cuts for the wealthy expire. And – this is a bit complicated – something called “sequestration” also kicks in. This is a series of budget cuts that happen because of the “debt ceiling” deal, when Republicans held the debt ceiling hostage and threatened to put the country into default, demanding that we immediately take trillions out of the economy. The sequestration deal was a compromise that was intended to force the Congress to agree to a bipartisan solution, which failed.
The sequestration includes military cuts, which our billionaire-backed DC elite believe would ruin the economy when combined with expiration of the Bush tax cuts -- because in their minds tax cuts do not cause deficits and unlike other government spending military spending creates jobs. So to avoid the "Fiscal Cliff" after the election Congress is supposed to meet to keep the military budget intact, keep taxes on the rich from rising and cut the things our government does for We, the People.
Why After The Election?
That pesky democracy thing keeps on getting in the way of Wall Street’s plans for our economy. But after the election comes what's called a "lame duck" session of the Congress. The legislators who have been chosen by the people aren't in office yet, the ones who have been defeated are still there and the ones who were re-elected know that anything they do will be long forgotten by the next election. Democracy and the will of the people will not be a factor. Every poll says the public wants immediate action on jobs and no cuts in the things government does for We, the People.
If Obama is re-elected the post-election debate will be between the Obama deficit plan, a "Grand Bargain" based on the "Simpson-Bowles" plan vs the Ryan plan -- the budget the House Republicans passed that privatizes Medicare and reduces spending on most things government does for our people. If Romney is elected all bets are off.
Simpson-Bowles is a budget plan put together by a Republican Senator and a Director of the Wall Street bank Morgan Stanley. After the President's National Commission on Fiscal Responsibility and Reform ("Deficit Commission") failed to make recommendations, the two came up with a plan that cuts Social Security, cuts a number of other things government does for our people, cuts a bit from military and cuts tax rates on the rich and corporations, calling it "reform." (The plan also eliminates the home mortgage interest deduction, for example.)
Important point: At least Simpson-Bowles is not a "cuts cause growth" plan. It is sold as a deficit plan, even though it cuts taxes at the top and for big corporations. It clearly asks that any cuts not take place until the economy has improved because cuts slow growth.
The "Grand Bargain" is the idea that Democrats and Republicans can reach a compromise involving Republicans "allowing" tax "reform" that eliminates some tax deductions like the home mortgage interest deduction and reducing tax rates on the wealthy and corporations, in "exchange" for cuts in things government does for us, including Medicare, Social Security and Medicaid. (These cuts do not eliminate the need, they just shift the cost away from the government onto the larger economy.) (If this sounds like a "bargain" that entirely benefits the wealthy and large corporations, that's just how Washington works these days.) ("Reform" always means cutting out things government does for We, the People and reducing taxes on the wealthy.)
Austerity is the word used to describe attempts to lower budget deficits by cutting government spending on the things that government does for its citizens.
The theory is that cutting way back on government will cause the economy to grow because government is "in the way" and helping citizens "takes money out of the economy." Also, when government provides fewer safety-net services unemployed people are forced to take any work they can get, which drives wages down and increases corporate profits. Government cutbacks also mean they can't enforce regulations, which unleashes businesses to pollute, commit fraud, cut safety procedures and other things government polices that restrict corporate profits.
But austerity literally "takes money out of the economy." Public-employee wages and pensions are cut. Government services and safety net programs are cut. Public assets are sold off for immediate cash (reducing the government's income in later years). So the demand side of the economy is reduced as people are not able to spend.
The Results Of Austerity
In practice the theory that removing government makes the economy grow has not worked out. Several European countries have been severely cutting budgets, and the result has been that the economies in the "austerity" countries have suffered. These economies appear to have fallen into a downward cycle where the "reforms" reduce demand, growth stalls, this reduces tax revenue, which means the deficit-cutting is not effective. (And meanwhile the economies are ruined and people are in misery.)
The austerity cycle happening in Europe works something like this:
Bankers demand "austerity" which drives up unemployment, cuts demand and slows economic growth. The reduction in economic growth causes tax revenue to shrink and increases use of whatever "safety net" programs remain, thereby increasing budget shortfalls.
So bankers demand more "austerity" which drives up unemployment, cuts demand and slows economic growth. The reduction in economic growth causes tax revenue to shrink and increases use of whatever "safety net" programs remain, thereby increasing budget shortfalls. .
So bankers demand more "austerity" which drives up unemployment, cuts demand and slows economic growth. The reduction in economic growth causes tax revenue to shrink and increases use of whatever "safety net" programs remain, thereby increasing budget shortfalls.
So bankers demand more "austerity" ... well you might be starting to get the picture.
Recession Resulting From Austerity
These are the GDP growth rates in European "austerity" countries:
Chart from Think Progress, CHART: HOW AUSTERITY IS SQUASHING EUROPE’S ECONOMIC GROWTH.
Unemployment Resulting From Austerity
These are the official unemployment rates in European "austerity" countries:
Austerity NOT Lowering Debt
Here is a chart of the debt-to-GDP ration as these countries shrink their GDP - and tax revenue - through austerity (click for larger):
Decline Resulting From Austerity
Europe is approaching a crisis as the region’s debt crisis and austerity measures increase the rates of depression, suicide and psychological problems – just as governments cut healthcare spending by up to 50 percent, according to campaigners, policy makers and health organizations.
Portugal's health service is being forced into sweeping cuts as last May's EU/IMF bailout terms begin to bite
Catholic Online: European economic crisis takes emotional toll
Suicides Resulting From Austerity
Digital Post, July: Austerity takes its toll with suicides increasing in Greece
Tampa Bay Times, August: Suicide rates rise in Europe amid job losses and severe cutbacks
Digital Post, August: Italian dies after setting himself alight in austerity protest
Reuters, August: Study links British recession to 1000 suicides,
A painful economic recession, rising unemployment and biting austerity measures may have already driven more than 1,000 people in Britain to commit suicide, according to a scientific study published on Wednesday.
CNN, September: Death and taxes in Italy
Watch the following news reports if you can stomach it:
What You Can Do
So the experiment in austerity that is playing out in Europe is coming to the US after the election - when democracy can't intervene.
But the way to reduce deficits is to grow the economy. When people have jobs they pay taxes and use fewer social services. Jobs programs that come out of fixing our infrastructure and making us less dependent on oil also make our economy more competitive in the future so they pay for themselves.
Contact your member of Congress and let them know that you do not think this is the time to cut the budget. Let them know that you want to see jobs programs, infrastructure maintenance and improvements, increase the safety net so people are not forced to take any work, cut the age when people can get Medicare and Social Security and increase the benefits so people can retire and open up jobs and renegotiate trade deals that are sucking us dry.
Tell them jobs fix deficits -- you want to grow us out of deficits, not pretend that cuts will work. Cuts make deficits worse.
Posted by Dave Johnson at September 12, 2012 10:08 AM
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