Friday, December 07, 2012

Fiscal cliffing ourselves into austerity economics in the middle of a depression

Digby has a good roundup on austerity-economics news in Europe and Australia in Let's do it anyway, shall we? Hullabaloo 12/07/2012. Guess what? It's making their economies shrink!

The most important immediate issue in the Fiscal Cliff farce is maintaining the benefits on Social Security, Medicare and Medicaid. Wall Street, the Republicans, and - sadly, President Obama - are using this ginned-up pseudo-crisis to try to cut benefits on those programs as a way for Wall Street to tap into the Mississippi River of cash flows that privatized versions of those programs could provide for banks, brokers and insurance copies to suck gigantic fees from at the expense of the majority of the country.

But those cuts wouldn't provide immediate pro-cyclical effects. i.e., making the recession worse. The whole debate in which the President, leading Democrats and the whole Republican Party are calling for deficit reduction in the middle of a depression just shows the ghost of Herbert Hoover running wild.

Mike Koncza in gives some examples of the toxic economy analysis that One Percenter think tanks have been cranking out, in particular over the issue of the debt ceiling, and concludes, "There's no good reason for the debt ceiling, and now there are really bad consequences for its existence. Time to end it." (Another Reason to Kill the Debt Ceiling: Conservative Think Tanks' Responses to Default Rortybomb 12/05/2012)

Jared Bernstein takes a look at some current real-world figures and points out something relevant to the deficit:

In fact, if any column in the table is flashing red (other than unemployment), it’s the revenue column. Since 2009, revenues are up only 0.7% of GDP while spending is down 2.4%. That’s the largest three-year spending contraction since the mid-1950s. The 3.1% of GDP decline in the budget deficit since 2009 is the largest three-year drop since the 1940s. To be fair, it’s also the case that the increase in the deficits up to 2009 were historically very large as well. But they needed to be. (emphasis in original)
And Yves Smith at Naked Capitalism asks us to be alert for "shameless cases of fearmongering and distortions" during the budget/fiscal cliff/deficit/Grand Bargain debates. And gives us an example: Fiscal Cliff Propaganda Watch: Business Owner Says the Fiscal Cliff Made Him Fire His Son 12/07/2012. Several examples, actually:

The lies told to sell the chump public on the necessity of enduring cuts to the social safety net are already at a breathtaking level. Where would you like to begin? The idea that big reductions in spending (going over the edge of the world off the fiscal cliff would be horrific, while only somewhat big cuts would be salutary? That Social Security “reforms” are necessary to fix the budget? Even former budget chief Peter Orszag ‘fessed up that one was not true. Or the favorite refuge of the Republicans, that raising taxes on the wealthy will hurt job creation. Ahem, we’ve pushed the low taxes model further than any other advanced economy, and the result is crumbling infrastructure, an overpriced and mediocre health care system, and record corporate profits combined with extreme measures to pay more to workers and a lack of new investment (the corporate sector has been a net saver since the early 2000s).
I've gotten as tired of hearing the phrase "crumbling infrastructure" as that cute little girl in the pre-election YouTube video crying about how tired she was of hearing about Bronco Bamma and Mitt Romney. But his point is right.

We would have a better chance of have some really constructive solutions to the depression if we had a President who didn't have to be constantly pressured to act like a Democrat at all on economic issues. But at least he's not Mitt Romney, and that's good.

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