Hell Bent on Austerity

With 59 Republican negative votes (including 27, mostly Tea Party, freshmen) on the House spending bill, a whole lot of politicians are betting that cutting federal government expenses and keeping taxes low for the wealthiest 2% are the right roads to recovery, the paths that will generate the most new jobs. But before the latest austerity measures were enacted, the economy experienced two consecutive months of job growth; unemployment dropped from 8.9% down to 8.8% from February to March. Nevertheless, austerity measures are gripping not just the feds but most states and local governments, which are beginning their cutbacks and layoffs… which in turn takes those government workers out of the consumer marketplace, creating a trickle of negativity as their reduction in spending takes its toll down the line.

Maybe that’s why the most recent employment numbers are moving back into the wrong direction: “Applications for jobless benefits rose 27,000 in the week ended April 9 to 412,000, the most in two months, Labor Department figures showed today in Washington.” Washington Post, April 14^th. We’ve seen how U.S. corporations have horded cash since the economic collapse in the fall of 2008: “[Here] is a fairly staggering figure that comes out of the Bureau of Economic Analysis: Despite widespread unemployment, the BEA reports that U.S. corporations, reluctant to expand in an uncertain economy, are sitting on $1.6 trillion in cash reserves, a record amount.” ABCNews.com, April 1, 2010, and there is no sign in 2011 that they are releasing any of that money to accelerate new hires.

Globally, estimates from a Wall Street Journal article last year (July 13) tell us that the world’s wealthiest investors (folks with $1 million or more to invest) have horded $16.5 trillion dollars, a record. While it was a nice theory when it was introduced in the Reagan era, there has never been any evidence that funneling money to the rich creates a trickle down to the lower classes; this strategy has been discredited for years. So it seems pretty silly to assume if you cut taxes and put more money in the pockets of the big corporations and wealthy investors, they are going to stop doing what they have done for three years (hording) and start spending money to create jobs.

You don’t hire people because you have spare cash; you add employees to meet demand for additional products and services. Thus, you need demand to move you to create jobs. What the government did with its stimulus programs, albeit badly, was to use the government cash (i.e., government demand) to replace virtually non-existent consumer demand. But the latest mantra is to stop the government from spending which somehow will cause the economy to recover… a nice concept that sounds too good to be true… because it is.

Since consumer demand is anything but recovered, pulling the government out of that spending mode, in fact releasing more unemployed people (laid off state, federal and local personnel) into the marketplace who provide even lower consumption expectations, only further erodes that demand. Sure inflation is bad and government spending without offsetting revenues does push inflation upwards, but is a double-dip recession a better alternative? Since governmental austerity programs, like reducing the budget, by definition mean employing fewer people and providing less in retirement and unemployment benefits, pretty clearly, without sufficient private demand (not happening!), they basically are demand and hence job killers. And without jobs, who’s going to buy enough houses to stabilize that market?

Is it really just a battle between opinions: Tea Party spend-cutters and Obama spend-supporters? Or is there any tangible evidence in the post-collapse developed world that might tell us what austerity programs really produce? We can guess about the consequences of the Tea Party rush to cut spending… or we can look at England that actually imposed such austerity programs over a year ago and see how they are working.

Here’s the report card: “Retail sales plunged 3.5 percent in March, the sharpest monthly downturn in Britain in 15 years. And a new report by the Center for Economic and Business Research, an independent research group based here, forecasts that real household income will fall by 2 percent this year. That would make Britain’s income squeeze the worst for two consecutive years since the 1930s.” New York Times, April 14^th. Long term, there is no doubt that the United States has to get its borrowings under control; now is just not the time to follow a path that others have already proved is a big negative for economic recovery. We know austerity programs don’t provide what its proponents promise; it’s time to try a different approach.

I’m Peter Dekom, and it is truly amazing to watch people who studied economics in college pretend they never went to class… hmmmmm… maybe they didn’t.