July 2011, Week 4


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Tue, 26 Jul 2011 22:23:51 -0400
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Budgetary Deceit and America's Decline

By Jeffrey Sachs

NewsWire - Latest news and commentary
July 23, 2011


As I shuttle between East Africa, where a severe drought
threatens the lives of more than 10 million people, and
Athens, where a financial crisis threatens Greece and all of
Europe, I am shocked by the U.S. budget negotiations between
Congress and President Obama.

Every part of the budget debate in the U.S. is built on a
tissue of willful deceit. Consider the Republican Party's
double-mantra that the deficit results from "runaway
spending" and that more tax cuts are the key to economic
growth. Republicans claim that the budget deficit, around 10
percent of GDP, has been caused only by a rise in outlays.
This is blatantly untrue. The deficit results roughly
equally from a fall of tax revenues as a share of GDP and a
rise of spending as a share of GDP.

On both sides of the ledger -- spending and taxes -- part of
the shift results from the weak economy ("cyclical factors")
and part from long-term trends. Spending, for example, is
higher in part because of unemployment compensation, food
stamps, and other federal spending to help the downtrodden
in a weak economy. That's the "cyclical" component. Part of
the higher spending reflects long-term patterns, such as
rising health care costs and an aging population, as well as
America's chronic addiction to wrongheaded wars and military
occupations in Africa, the Middle East and Central Asia.

Taxation is lower also because of short-term factors and
long-term factors. The short-term factors involve reduced
federal revenues in an economy with high unemployment. The
long-term factors involve repeated tax cuts for companies
and high-income individuals that have systematically eroded
the tax base, giving unjust and unaffordable benefits for
America's millionaires, billionaires, and multinational

The Republicans also misrepresent the costs and benefits of
closing the deficit through higher taxes on the rich.
Americans wants the rich to pay more, and for good reason.
Super-rich Americans have walked away with the prize in
America. Our country is run by millionaires and
billionaires, and for millionaires and billionaires, the
rest of the country be damned. Yet the Republicans and their
propaganda mouthpieces like Rupert Murdoch's media empire,
claim with sheer audacity that taxing the rich would kill
economic growth. This trickle-down, voodoo, supply-side
economics is the fig leaf of uncontrolled greed among the
right-wing rich.

The truth is that we need more federal spending to create
good jobs and remain globally competitive, not as some kind
of short-term "stimulus" but as a long-term investment in
education, job skills, science, technology, energy security,
and modern infrastructure. I travel around the world as part
of my job, and I can say without doubt that America has
failed to modernize the economy and is steadily losing its
international competitiveness. No wonder the good jobs are
disappearing and the pay is stagnant, unless of course you
are a CEO who can keep grabbing stock options and profits
from the shareholders (who are anyway enjoying record
incomes because of stagnant wages and high profits earned

The Democrats of the White House and much of Congress have
been less crude, but no less insidious, in their duplicity.
Obama's campaign promise to "change Washington" looks like
pure bait and switch. There has been no change, but rather
more of the same: the Wall-Street-owned Democratic Party as
we have come to know it. The idea that the Republicans are
for the billionaires and the Democrats are for the common
man is quaint but outdated. It's more accurate to say that
the Republicans are for Big Oil while the Democrats are for
Big Banks. That has been the case since the modern
Democratic Party was re-created by Bill Clinton and Robert

Thus, at every crucial opportunity, Obama has failed to
stand up for the poor and middle class. He refused to tax
the banks and hedge funds properly on their outlandish
profits; he refused to limit in a serious way the bankers'
mega-bonuses even when the bonuses were financed by taxpayer
bailouts; and he even refused to stand up against extending
the Bush tax cuts for the rich last December, though 60
percent of the electorate repeatedly and consistently
demanded that the Bush tax cuts at the top should be ended.
It's not hard to understand why. Obama and Democratic Party
politicians rely on Wall Street and the super-rich for
campaign contributions the same way that the Republicans
rely on oil and coal. In America today, only the rich have
political power.

Obama could have cut hundreds of billions of dollars in
spending that has been wasted on America's disastrous wars
in Afghanistan, Iraq, Libya, and Yemen, but here too it's
been all bait and switch. Obama is either afraid to stand up
to the Pentagon or is part of the same neoconservative
outlook as his predecessor. The real cause hardly matters
since the outcome is the same: America is more militarily
engaged under Obama than even under Bush. Amazing but true.

The stimulus legislation, pushed by Obama at the start of
his term on the basis of antiquated economic theories,
wasted the public's money and also did something much worse.
It discredited the vital role of public spending in solving
real and long-term problems. Rather than thinking ahead and
planning for long-term solutions, he simply spent money on
short-term schemes.

Obama's embrace of "shovel-ready" infrastructure, for
example, left America with an economy based on shovels while
China's long-term strategy has given that country an economy
based on 21st-century Maglev trains. Now that the resort to
mega-deficits has run its course, Obama is on the verge of
abandoning the poor and middle class, by agreeing with the
plutocrats in Congress to cut spending on Medicaid,
Medicare, Social Security, and discretionary civilian
spending, while protecting the military and the low tax
rates on the rich (if not lowering those top tax rates
further according to the secret machinations of the Gang of
Six, now endorsed by the president!)

Who runs America today? The rich and the multinational
corporations. Who runs the White House? David Plouffe, whose
job it is to make sure that ever word, every action of the
president is calculated for electoral gain rather than the
country's needs. Who runs the Congress, on both sides of the
aisle? The lobbyists, who win in every negotiation. And who
loses? The American people, who have said repeatedly that
they want a budget that sharply cuts the military, ends the
wars, raises taxes on the rich, protects the poor and the
middle class, and invests in America's future not just in
Obama's speeches but in fact.

America needs a third-party movement to break the hammerlock
of the financial elites. Until that happens, the political
class and the media conglomerates will continue to spew
lies, American militarism will continue to destabilize a
growing swath of the world, and the country will continue
its economic decline.


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