Everyone Except Politicians and Pundits Agree: Austerity Is Recklessly Insane

This week we’re finally seeing a consensus emerge about the negative, destructive impact of austerity. Economic observers from Nobel Laureate Paul Krugman to the San Francisco Federal Reserve Bank are now in agreement that further state and local budget cuts would throw the country into a double-dip recession, and make it that much more difficult to pull ourselves out of the recession.

Other countries that have embraced austerity are now starting to realize the catastrophic nature of the error. Ireland has realized that austerity has made their economic crisis worse, not better. And Britain is waking up to the fact that the new coalition government’s austerity plans will produce mass unemployment.

Yet California’s Republican leaders still believe that austerity is necessary. Governor Arnold Schwarzenegger, Republicans in the legislature, and Meg Whitman are all calling for more cuts to public services and for mass layoffs of our own.

This flies in the face of the emerging consensus that these cuts are making the economic crisis – and therefore the budget deficit – worse, not better, and delaying true economic recovery.

Two of the nation’s largest newspapers have today joined the chorus. In the New York Times, David Leonhardt slams austerity as being nothing more than an attempt to prove that Hoover was right all along:

The world’s rich countries are now conducting a dangerous experiment. They are repeating an economic policy out of the 1930s – starting to cut spending and raise taxes before a recovery is assured – and hoping today’s situation is different enough to assure a different outcome.

In effect, policy makers are betting that the private sector can make up for the withdrawal of stimulus over the next couple of years. If they’re right, they will have made a head start on closing their enormous budget deficits. If they’re wrong, they may set off a vicious new cycle, in which public spending cuts weaken the world economy and beget new private spending cuts.

As we know, in a balance sheet recession, the private sector cannot make up for the withdrawal of stimulus, at least not until the debt is purged, a process that will take many years and will in fact be prolonged without government stimulus. So this voodoo faith that the private sector will step in when government is cutting is not just a fantasy – it is a delusion.

Here in California, the LA Times has weighed in as well, with an excellent article from Michael Hiltzik on the dangers and costs of budget cuts. The whole thing is brilliant, and delves into the whole scope of our weak economic pictures, including low wages and income inequality, and the need for government to step in to provide solutions:

The state budget reductions, wage cuts, furloughs and layoffs that will be made necessary by Congress’ dereliction will drive up unemployment, erode consumer demand and intensify doubts about the strength of the recovery….

The deficit-cutting craze of the modern day threatens another such double dip. Its promoters say they’re out to protect long-term economic prospects, but without a short-term recovery there may not be a long term to protect. If they get their way, we may not feel the consequences of their error before it’s too late to fix.

It seems that Sacramento Democrats have finally started to accept this reality. Both the Assembly and the Senate are proposing budgets that seek to minimize further cuts and find new ways to fund government, either through borrowing (as in the Assembly budget) or through new taxes (as in the Senate budget). Obviously both borrowing and taxes will have to be part of the solution, but how this is framed makes a difference. The Assembly calls their budget the “jobs budget,” which is a good start.

But I would even go more basic than that. Sacramento Democrats need to come out and say “The era of budget cuts is over. We will no longer destroy our economy to satisfy the rich.”

The public does not want spending cuts, and has shown a willingness to support new taxes to prevent cuts to schools, health care, and human services programs. The public certainly doesn’t want closed libraries or police layoffs either.

When you combine that public sentiment with the growing consensus of economic observers that austerity is merely going to worsen our economic crisis, Democrats should be in an unassailable position to beat back Republican demands for an all-cuts budget – and would have the arguments and framing needed to finally destroy Republican opposition to new taxes.

Californians may have a complicated relationship with taxes, but their attitudes on jobs, the economy, and public services are clear: they don’t want to sacrifice all three in the name of a right-wing anti-tax crusade.

The cry going forward is clear: no more austerity. Three years is enough. The 2010 budget battle is about California’s future, and whether we will have economic growth, or whether we will destroy our chances at prosperity and destroy our public services in order to appease the right-wingers.

2 thoughts on “Everyone Except Politicians and Pundits Agree: Austerity Is Recklessly Insane”

  1. Right now we measure all government services in terms of how much they cost vs. some very, very simple variable.  For example, we measure cost vs. number of students (or inmates).  We measure cost vs. number of employees.  

    I think we should be measuring vs. the outcomes that we really want.  For example, measure cost vs. students who graduate.  Or cost vs. inmates who don’t come back.  Or cost vs. calls for service.   I don’t want to just look at the cost of government.  I want to look at the value that government provides.  

    If we are spending less per inmate than other states, but more per inmate that doesn’t return to prison, I want to know what kind of leadership we have in prisons.  However, we don’t really measure that way.  And we should.

  2. And I wonder what will ever be done to stop it from repeating. A new study shows (yet again) that we, your next door neighbors, have the second tiniest tax burden in the nation… And what do we have to show for it? Failing schools, falling apart roads, DMV offices only open four days a week with minimal staffing, parks on the verge of closing… Basically, Nevada is on track to become a failed state if we don’t do something ASAP to reform our wacked out tax code and make it less regressive (by making mining and other “big bidness” interests pay their fair share, instead of hitting working class families with sales tax hikes and hoping more people gamble at the casinos), along with properly funding our schools, our transportation system, our parks, our health care, and the rest of our needed public infrastructure.

    And now that I live here, I can really see through the BS the GOoPers tell you in California. “The Austerity Mystique” is really just hot air, and a state won’t function as a state if all the state’s proper functions are completely defunded.  

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