fresh voices from the front lines of change







Congress is taking this week off on the first of their spring breaks. The legislators will return to find only four days left before the first of the Republican Congress’ austerity bombs – the deep automatic cuts in government spending known as the sequester – is set to explode on March 1.  That will be followed by the threat to shut down the government at the end of March and the threat to blow up the financial system with a new debt ceiling melodrama beginning sometime around the middle of May.

Once more, the Republican Congress is holding the economy hostage as “leverage” to extort deep and unpopular cuts in the core pillars of family security – Social Security, Medicare and Medicaid.  Not surprisingly, Americans disapprove in large numbers, with Congress in general and Republicans in particular setting new records in popular disregard.

But make no mistake; the wrecking crew is winning by defining what the national debate is about.  Republican Senate leader Mitch McConnell calls the deficit the “transcendent issue of our time,” as if balancing the budget would fix our economy.

No, the fundamental issue of our time is an economy that works only for the few, plagued by mass unemployment, declining wages and increasing insecurity.  But despite the best efforts of the president in his State of the Union address, the fiscal hostage-taking by McConnell and the Tea Party Congress have made deficits the only subject in town.

The days until the March 1 deadline – and the months thereafter – will witness a cascading cacophony of media hysteria, pundit speculation and political posturing about a “grand bargain,” a short term “fix,” a possible deal – all about what spending to cut or what taxes to hike.  Republicans demand spending cuts only; the president and Democrats call for “balanced” plans that combine revenues and spending cuts.  But the subject will be deficits.

Senate Democrats provided a classic example on their way out of town last week.  They agreed upon a package of tax hikes and spending cuts over the next 10 years designed to spread the cost of delaying the sequester until December.  The package featured eminently sensible reforms – including on the tax side implementation of the “Buffett rule” so that millionaires no longer pay lower tax rates than their secretaries, and on the spending side cutting military spending as the Afghanistan war winds down.

But the money raised and saved would be devoted not to rebuilding our decrepit infrastructure and putting people to work, not to rehiring teachers, not for a jobs corps to reduce the catastrophic joblessness among the young.  It will be devoted to “paying for” putting off the sequester – arbitrary, across the board cuts in military and domestic spending designed purposefully to be intolerable – for a few months.  And of course, House Republicans scorn it, insisting on spending cuts only.

Reason is the first casualty in this bedlam.  The hopes and security of Americans will be collateral damage.  Virtually every assumption of the debate is wrong.  And the only question is how much damage will be done by pompous politicians preaching fiscal probity.    To keep some grasp on reality in the midst of the hysteria, remember the following:

Americans aren’t “recovering” from the Great Recession.

Buoyed by three years of jobs growth and signs of life in housing, the White House says the economy is “poised for growth.”  In fact, the economy lost ground in the last three months of last year, largely due to a precipitous decline in government spending.  The nonpartisan Congressional Budget Office projects slower growth and higher unemployment this year than last, as the spending cuts and payroll tax hike already in place kick in.

Over 20 million people are still in need of full-time work.  The jobs being created pay less than those that were lost.  Wages are falling; inequality is growing.  The richest 1 percent captured a staggering 121 percent of the income growth in the two years coming out of the recession.  They pocketed all of the gains, while the 99 percent lost ground.

This is a human and national calamity.  Record long-term unemployment ruins lives, splits apart families, and crushes dreams.   Older workers may never find decent work.  The young may never recover from the hole they are in.

Deficit reduction is a problem, not a solution.

Deficits are not, contrary to the rhetoric of the austerity hawks, “out of control.”  Deficits have been falling rapidly as a percentage of the economy – too rapidly.  The CBO projects the annual deficit in fiscal year 2013 will be nearly half of what it was in 2009 as a percentage of the economy.   This is driven by growth.  As people go back to work, revenues rise and the costs of unemployment fall.  The largest decline in spending came from the decline in unemployment insurance as people went back to work.

But austerity chokes off growth by reducing demand.  Having lost 40 percent of their wealth and struggling with job insecurity and stagnant wages, American consumers have tightened their belts.  Companies are sitting on profits waiting for customers.  Interest rates are near zero, with the Federal Reserve taking extraordinary measures to keep the economy afloat.  In this circumstance, government spending is vital to driving demand for goods and services.  Cutting spending or raising taxes on working families – such as ending the payroll tax holiday, which will cost the typical family $1,000 this year – costs jobs and slows growth.  And that could, if it tips the economy back into recession, drive up deficits.

In a remarkable presentation last week at the AFL-CIO, Federal Reserve Board member Janet Yellen suggested that while the Federal Reserve is doing what it can to boost the recovery, it isn’t getting the help it needs from the Congress or White House.    She noted that this “painfully slow recovery for America’s workers” was the weakest since the Great Depression. 

Yellin presented the following graph, comparing the contribution of government spending in the months following this recession with those following previous recessions:

The austerity claque is winning – and they are crippling the recovery.

Our long-term debt challenge is a broken health care system.

Over the next 10 years, according to the CBO, the debt burden – debt to GDP – is already stabilized.  It is projected to grow thereafter, fueling the hysteria about cutting such “entitlements” as Social Security and Medicare.

But we don’t have an entitlements problem – Social Security benefits are, if anything, too meager, not too large – we have a broken health care system.  As economist Dean Baker has shown, if we paid anything near what European nations pay per capita for health care that produces better results, we would be projecting surpluses as far as the eye can see.

Interestingly, the growth of Medicare and Medicaid expenditures has slowed over the last years.  The CBO now projects that we will spend $200 billion less on Medicare and Medicaid by 2020 than it guessed three years ago, about 15 percent of each program.  These savings alone more than “cover” the cost of the first year of sequester.  Some of the savings may be due to the recession, but some may result from the reforms in health care delivery accelerated by Obamacare.

With the debt stabilized for a decade, we have time to both find out what is working and to continue to make sensible reforms to our health care system.  A public option to compete with private insurers and empowering negotiations to lower drug prices would be obvious first steps.

The forgotten debate

As the president outlined in his State of the Union address, we should be focused on making this economy work for working people once more.  This would involve a long-term new strategy for growth and jobs that would put people to work.  To address our long-term debt projections, we should be continuing to reform our health care system to get costs under control while providing affordable care for all.   If the rest of the industrial world can get there with different models, surely we can, too.

Instead we are victims of a classic example of shock doctrine – the right using an economic calamity to roll back social protections.  At a time of Gilded Age inequality, they seek to exact more pain from an already declining middle class – and get the president and Democrats to offer bipartisan cover.   It’s a jackal time and it’s likely to get worse.

Click here to tell Washington: Disarm the Austerity Bomb. Repeal the Sequester.

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