Tuesday, February 07, 2012

Austerity and Stupidity

Family budgets have to balance, at least eventually (the huge credit card debt that American families were carrying contributed to the Great Recession, though it wasn't the major cause.)  Families have few options when the bills are bigger than the paychecks.  Most can do very little about increasing the pay checks. So they have to cut back on spending.

We understand economics on larger scales with this in mind, but it is a flawed comparison in significant ways.  Businesses can increase prices a lot easier than people can increase their pay.  And government can raise taxes.  It's right and proper that citizens expect government to cut back spending if possible rather than raise their taxes.  But that's not really what the tax debate is about anymore, not even globally.

It's about the very rich, led by the banks and the institutions they control, vigorously fighting paying any taxes, let alone just and justifiable taxes, by buying officeholders and manipulating public opinion as well as by other means.  So the U.S. government is running deficits while cutting back spending, at precisely the time that this spending is most needed to stimulate the national economy.  And the same is true elsewhere.  And if this keeps on, we're all going to pay mightily.  Another recession so soon is going to mangle a fragile economy, and further wound government's ability to deal decisively with crisis.

What am I talking about?  Here in the U.S., the cutback in government spending has meant layoffs, which has kept the unemployment rate higher.  The U.S. has had almost two years of private sector job growth, but job losses particularly by state and local governments have continued.  The better but still low growth rate would be much higher if government wasn't slowing the economy down by not employing people, and not spending on infrastructure at even the normal replacement rate.  Employment means people are able to buy stuff, and it doesn't matter where the employment is.  Government jobs are often middle class jobs, and also often employ a fairer mix of races and genders.

  Austerity in this case is stupidity.  Not only does the economy require the multiplier effect of government investment in what we need done anyway, but the jobs that are being shed include police, firefighters and first responders--which hurts everyone in the present--and teachers as well as educational institutions, which hurts the future, and the ability of the country to prosper.  Failure to invest in infrastructure, emergency prepardedness, public health, are all bills that will come suddenly due in the worst possible circumstances.  Just in dollars alone, the Congressional Budget Office has calculated how the economy is going to be depressed by less government spending.

Why this austerity?  Politically, it has come down to a now very obvious protection racket for the rich.  All that is required, in many of the states as well as on the federal level, is fairer taxes of the very wealthy and the very very very wealthy.  Now a tax increase for less than 1% of the population would seem an easy decision for the 99% to make.  But that 1% owns the banks and major corporations, including the media.  It funds the economics departments and business schools, the sweet conferences and perks for academic economists, the outrageously paid speaking gigs for failed politicans, not to mention the lobbying public relations firms and think tanks, and now the Superpacs.

Austerity is out to destroy the U.S. economy and therefore its social cohesion in another way.  Right now Europe is going through its economic crisis, and the big banks that control that economy are insisting on government austerity.  So governments shed jobs and stop buying as much from the private sector, unemployment goes up, people have less money to spend, and the economy spirals down.  

And the situation is particularly bad in Greece.    "The Troika" -- the International Monetary Fund, the European Union, and the European Central Bank -are insisting on severe austerity, not only in government spending, but in the country, including slashing the minimum wage by 25%.  Greece is already reeling from past austerity measures.  This is the prescription by which the IMF and the World Bank has ruined economies throughout the world, increasing their debt.  These are the Shock Treatments that are central to the Shock Doctrine as N. Klein describes  it in her book.

But this time the shock is apt to be felt in North America.  Greece is facing another default crisis in March.  If the troika doesn't back off its ruinous austerity demands, the ripples will be quickly felt here, and the U.S. economic recovery could be over.  It's a moment very much like just before a war starts.  It's much easier to start a war than to stop one, as we've found to our considerable pain.  It's like that with a global economic crisis.  The default of Greece, or European crisis generally, is one of two predictable threats to American recovery (the other is war involving Iran.)  And like most tragedies, we're walking into this one with minds closed and eyes wide open.        

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