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PORTSIDE  May 2012, Week 3

PORTSIDE May 2012, Week 3

Subject:

Jobs First Is the Way Out of the Austerity Trap

From:

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Date:

Fri, 18 May 2012 21:02:07 -0400

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text/plain (173 lines)

The Austerity Trap and the Jobs Deficit

By Robert Borosage
May 17, 2012
http://ourfuture.org/blog-entry/2012052017/austerity-trap-and-jobs-deficit

The dire threat facing America, according to Mitt Romney
and Republicans this week, is debt, not mass
unemployment.

We face "a prairie fire of debt," Mitt Romney warned in
Iowa. Debt is "a grave threat to freedom," intoned House
Speaker John Boehner in Washington, while threatening to
hold the country hostage again over raising the debt
ceiling in December.

In the Senate, Republicans forced votes on the House
Republican budget that would gut Medicaid, cut all of
the domestic services of government by one-third, enact
deep cuts in food stamps, college grants and loans and
more. (Even five Republican senators-including two in
competitive races -couldn't stomach that).

First Things First

There are only two problems with this. Reducing deficits
isn't actually the first priority of Romney or
Republicans. And the plans they champion will surely
cost jobs, and most likely add to the debt burden.

Before dealing with the "prairie fire" that threatens
the nation, Romney and Republicans want to add fuel to
the flames. Their first priority is spending more money
on the military and collecting less money from the rich
and the corporations.

Romney's tax plan would cut revenue by some $4.9
trillion over a decade, less some unspecified loophole
closings. Millionaires would pocket an average tax cut
of $250,000 and those making $10,000 to $20,000 per year
would end up paying an average $174 more in taxes.

If Social Security and Medicare were protected for those
near retirement, as Romney sometimes suggests, then the
domestic side of government-everything from the FBI to
food safety to Medicaid and food stamps-would have to be
cut by over one half in 10 years. Romney can sell that
plan only by denying its effects.

The Austerity Temptation

This Republican extremism tempts Democrats to offer
alternative plans for austerity. Because Democrats are
prepared to raise taxes on the rich and put a lid on
military spending, they can reduce deficits without
ending Medicare or eviscerating all government services.

Their position of "shared sacrifice" is much more
popular in the polls. Two-thirds of Republicans support
a mix of spending cuts and tax hikes to reduce the
deficit. And in any "grand bargain," the President can
put everything on the table, and expose Republican
hypocrisy on deficits and extremism on taxes. Many
Democrats relish a face-off on austerity.

The Austerity Trap

But arguing about austerity is a trap-because what the
economy needs is jobs and growth.

The best deficit-reduction program is to put people to
work. Americans would prefer to cash paychecks and pay
taxes than to collect unemployment insurance and rely on
food stamps. When people go back to work, government
revenues go up and expenditures go down. No measure will
do more to reduce deficits. A full employment economy
erases more than a third of the deficit. With a stronger
workforce, we could focus on the real source of our
long-term debt problem: the soaring costs of our broken
health care system.

But when Democrats focus on the austerity debate, they
get tongue-tied about jobs.

With the Federal Reserve already keeping interest rates
near zero, there are only two major theories about how
to generate job growth.

One view is what has infamously become known as the
oxymoronic "expansionary austerity." The argument is
that if you cut spending, taxes and deficits and roll
back regulations, businesses will gain the confidence to
invest and hire.

The alternative suggests that business owners don't lack
confidence; they lack customers. With mass unemployment,
businesses sit on profits; the rich move money
elsewhere. So the government must act to put people to
work.

With money "cheaper than free," (that is, the government
is able to borrow at interest rates lower than the rate
of inflation), there will never be a better opportunity
to rebuild America, launch a major program to renovate
our decrepit public infrastructure and put a
construction industry that is flat on its back to work.
Add to that revenue sharing so the states can rehire
teachers and cops, and a Veteran's Corps and Urban Corps
to directly employ veterans and young people. Accelerate
refinancing and mortgage relief for underwater
homeowners. Keynesians would pay for this by borrowing
the money, but even if we taxed the wealthy and
corporations to use the money they are sitting on, we'd
still generate more jobs, and then more revenue and less
spending-and in this way lower deficits.

Romney and the Republicans champion expansionary
austerity. But we've had a real-world experiment in such
austerity in Europe. While Obama resisted Republican
calls for drastic budget cuts, Britain's conservative
coalition government embraced them. This approach drove
Britain back into a recession, increased misery and will
likely end up raising, not lowering, its deficits and
debt burden. Across Europe, we've seen that austerity in
a weak economy is like bleeding a patient just
recovering from an operation. It's dangerous to your
health.

But Democrats are virtually silent about their jobs
agenda. Obama put a decent one out last fall and
campaigned for Republicans to pass it, but hasn't said
much about it recently. When Republicans failed even to
pass a decent transportation bill-traditionally a
bipartisan jobs bill-the White House barely took note.

At present, the Obama campaign seems intent on selling
the growth we have. "We're on the way back." But with
mass unemployment, wages still not keeping up, and home
prices still in the pits, momentum is not an answer.

Americans are naturally skeptical about Romney's
trickle-down promises. We've been there, done that. A
few made out like bandits; 99 percent didn't share in
the rewards.

Democrats need to lay out a big argument on jobs first
as part of building a new strategy for the economy. They
must challenge Romney's hysteria and hypocrisy on debt
not with a better austerity plan, but with a plan for an
economy that works for working people. A mandate from
voters for jobs first will be vital when the lame-duck
Congress confronts the fiscal train wreck after the
election, and jobs first is the only sensible way to
begin getting our books in order.

___________________________________________

Portside aims to provide material of interest to people
on the left that will help them to interpret the world
and to change it.

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