by Al Hart
There are 15 million unemployed people in our country and another 9 million underemployed. In July, we lost another 131,000 jobs. That included 71,000 private-sector layoffs, but also 48,000 jobs eliminated by state and local governments. July’s dismal numbers follow those of June, when 221,000 people lost their jobs.
With the country in the worst economic hole that most Americans can remember, conservative politicians and bankers are prescribing “medicine” that can only make things worse: immediate cuts in basic public services and jobs. They say we should forget about creating jobs, saving education, or helping the jobless and those about to lose their homes. The country’s top economic priority should be cutting the deficit.
Much of Washington is being swept by deficit hysteria. Republicans in the Senate, joined by conservative Democrats, have blocked extensions of unemployment benefits several times this year because, they said, it would increase the deficit. (On July 20 the bill finally got past their filibuster threat with a 60 to 40 vote, the minimum needed to break a filibuster.) The so-called “deficit hawks” in Congress, and their allies on Wall Street and in the media and conservative think tanks, have made it unlikely that we’ll get a much-needed second stimulus or serious federal jobs bill – or that the federal government will throw a lifeline to beleaguered state and local governments.
With tax revenues drying up because of the losses of jobs and sales – and the real estate crash – basic public services are disappearing across the country, along with the jobs of service providers. Teachers, police officers, and street repair workers are among those being laid off. Because of budget shortfalls, Colorado Springs has shut off a third of its streetlights. Kids in Hawaii have been put on a four-day school week. In many places this summer, youth jobs programs never operated, public swimming pools were closed, and last winter's potholes went unfilled. Close to 300,000 state and local public sector jobs have been cuts since 2008, other public workers have suffered pay cuts and unpaid furloughs, and anti-labor politicians have scapegoated public employees as the source of the problems.
The federal budget deficit has gotten bigger in the past three years, but that’s because of the economic crisis itself, which has drastically reduced tax revenues. Imposing fiscal austerity in the midst of a general economic crisis can make things much worse; this is what President Herbert Hoover did in the wake of the 1929 stock market crash, and the result was the Great Depression. The esteemed economist John Maynard Keynes developed the concept that, in a collapse of private sector “aggregate demand” (the total of spending and investment), the government can rescue the economy through spending that replenishes incomes and stimulates growth. Used for this purpose, deficit spending is necessary and useful – and President Franklin Roosevelt’s New Deal showed that it works.
Joseph Stiglitz, winner of the Nobel-prize in economics and former chief economist of the World Bank, advocates this approach – as do many economists. He wrote on February 10 on the website Politico:
“The real risk for America right now is a prolonged weak economy – something that a mindless focus on deficits can help ensure.
“The deficit hawks from the banking system went on vacation from the fall of 2008 through the spring of 2009, while they demanded money be doled out freely – to themselves. But now that the public clearly won’t stand for another free lunch at its expense, the deficit hawks are back at work, more vocal than ever about the need to cut government spending.
“They say it was necessary to the health of the economy to dole out money to the banks; but not necessary to the health of our society to make sure everyone has access to health care. It was not acceptable to alter the contracts of the AIG personnel, even those ‘key’ and irreplaceable personnel who made the mistakes that led to a $180 billion bailout, but acceptable to break the social contract between America’s elderly and the rest of society, by cutting back on Social Security.”
Stiglitz points to an economic principle, the multiplier effect, which says that a dollar of government spending yields, in general, a $2 cumulative increase in Gross Domestic Product (GDP), as well as increased tax revenue. In an economy operating far below potential, government spending that stimulates economic activity more than pays for itself. Some kinds of spending are better stimulants than others, he says; public money invested in “technology, education and infrastructure” do more for economic growth than expenditures on the Afghan war, or bailouts to bankers that don’t require them to make credit available to save jobs. Public spending on jobs that prevents millions of workers from losing their homes, or saves young workers from being stuck for years in poverty, has an even greater economic and social benefit than in normal times.
DEFICIT HYPOCRITES
The ranks of the deficit hawks in Washington include many of the same politicians who helped destroy the budget surplus that George W. Bush inherited from Bill Clinton, driving the country into deficit with massive tax cuts for the rich and two costly wars. As noted above, the beneficiaries of the bank bailout became advocates of government austerity only after they got their own $700 billion of public money.
But particulaly galling is the fact that, after repeatedly voting against unemployment compensation, job creation and aid to the states, conservatives in Congress now argue for renewing the Bush tax cuts for rich people making over $250,000 a year, which are set to expire at the end of this year. The Office of Management and Budget says extending the Bush tax cuts would add $678 billion to the deficit over a 10-year period.
Paul Krugman, another Nobel-prize economist and a columnist for the New York Times, put it bluntly in his June 18 column: “In America, many self-described deficit hawks are hypocrites, pure and simple: They’re eager to slash benefits for those in need, but their concerns about red ink vanish when it comes to tax breaks for the wealthy. Thus, Senator Ben Nelson [D-Nebraska], who sanctimoniously declared that we can’t afford $77 billion in aid to the unemployed, was instrumental in passing the first Bush tax cut, which cost a cool $1.3 trillion.”
Dean Baker, co-director of the Center for Economic and Policy Research, called these people “deficit chicken hawks” – a reference to foreign policy chicken hawks such as George Bush and Dick Cheney who are always eager to send others to war, but who managed to avoid combat when they were of military age. “Basically, the deficit chicken hawks want deficit reduction, but they only want it to be at the expense of the elderly and the poor, hence their attacks on Social Security and Medicare.”
Since the increase in the deficit over the past few years “was overwhelmingly due to the economic collapse” brought on by reckless Wall Street speculation, Baker argues, it makes sense to make Wall Street pick up the tab. He calculates that a tax on financial speculation could raise about 1 percent of GDP, or $150 billion a year. “Yet almost none of the deficit hawks will go near a financial speculation tax.”
The deficit hypocrites have been staunch defenders of the healthcare profiteers as well as of Wall Street. Baker writes: “As all budget analysts know, the country’s long-term budget problem is due to our broken health care system,” in which we pay more than double per person what other wealthy countries pay for healthcare. But the budget deficit hawks in Congress made sure that the healthcare reform bill did not include single payer, a public option, or any real controls on price gouging by the insurance or pharmaceutical industries.