Thursday, May 10, 2012

"Austerity" just as wrong for the U.S. as it is for Eurozone

The reaction of the right to the election of Socialist Francois Hollande in France seems to be one of consternation, apparently because its attempt to complete the process of turning society back to a lord/serf relationship has been temporarily stayed, at least in France. Matters are somewhat different in Greece, where fascist elements have made surprise electoral advances that should be even more worrisome than France, since the Eurozone is viewed as the cause and not the solution to Greece’s economic problems (and not without reason). Several years of “austerity” programs—brought on by the kind of corporate and financial malfeasance that right-wing deregulation policies are largely responsible, and the starving of government of tax revenue by reducing taxes on the wealthiest individuals and corporations—have failed to raise the Eurozone out of recession, and the insistence on “staying the course” by the right sounds increasingly like a general who will sacrifice the lives of his soldiers when surrounded on all sides, just to “save face.”The ironic part is that the right tends to forget how to be "conservative" when it promulgates profligacy by financial institutions and the military--and yet expects the impoverished to "restrain" their needs and desires.

The Tea Party extremists in this country, led by Rep. Paul Ryan, continue the mantra—which should have been clearly discredited after eight years of “experimentation” under the Bush administration—that lowering tax cuts for the wealthy, allowing for and deregulating extremely risky financial gambling, cutting social programs, needless foreign adventures have weaken the country’s ability to pull itself out of recession. It always seems that people who make such policies are so far removed from reality that they seem unmindful of the fact that concepts like “austerity” have a tendency to effect people who can’t afford to be any more “austere”—while demanding nothing of the well-off. The policies that make austerity “necessary” continue the process of a personal philosophy of disdain for average working people and a desire to “categorize” people along lines of “worth,” and distribute wealth as seen fit. Thus instead of trying to find ways of maintaining funding of Medicare and Social Security when the need will only increase, Ryan and his Klan only see an opportunity to eventually destroy both programs altogether. Who this effects and how is immaterial, because they are certain that they will be wealthy enough to have no need for either program.

The National Review recently called the Ryan “plan” of cutting “entitlement” programs for the old and impoverished as not “austerity” but “reform,” because instead of across-the-board cuts, it leaves military spending intact while cutting said domestic programs; the right does like to saber-rattle—especially against the “dark ones,” to say nothing of what they like to do them here. It is hard to see where the “reform” part comes in. Making vague allusions toward closing “loopholes” about who is eligible to receive benefits while refusing to address corporate and individual tax dodges and loopholes that have reduced tax revenue as a percentage of GDP to its lowest level in 70 years is not “reform” but a mean-spirited ideology. Taxes—even to merely allow the Bush tax cuts for the wealthy to expire—remain off the table, again an indication that the Republican view of the world is extremely narrow and narrow-minded.

Is there a lesson to be learned by what is happening in Europe? Larry Summers recently opined that the high budget deficits in Europe are not the cause of its problems, but a symptom of it. The financial crisis, largely caused by irresponsible behavior by the banking sector—and aided by equally irresponsible deregulation—was the cause of the latest recessionary period, and with it reduced lending to spur growth, essentially “punishing” potential borrowers for its own misdeeds. Instead of treating the cause, current parties in power, most of them on the conservative side, have chosen to focus on “treating” the symptoms (budget deficits) which, according to Summers, is “a good way to make a patient worse.” It is like “treating” a cancer patient with morphine; the symptom—pain—is reduced, but the cause—cancer—only gets worse. And now the current tight rein on credit in Europe inhibits growth and exacerbates government debt. “In any financial situation where interest rates far exceed growth rates, debt problems spiral out of control. The right focus for Europe is on growth. In this context increased austerity is a step in the wrong direction.”

Reduction in government spending has the effect of reducing GDP by a factor greater than that of deficit reduction. “This means austerity measures at the national level are likely to be counterproductive in terms of creditworthiness,” states Summers. “Fiscal contraction reduces incomes, limiting the capacity to repay debts. It achieves only very limited reductions in deficits once the adverse effects of contraction on tax revenues and benefit payments are taken into account. And it casts a shadow over future growth prospects by reducing capital investment and raising unemployment, which takes a toll on the capacity and willingness of the unemployed to work.”

The increasing wealth gap in both the U.S. and Europe has also infected economic stability in insidious ways. In many ways the economies in the U.S. and Europe expanded in spite of these increasing income gaps between the rich and the average consumer, who have increasingly less disposable income in relation to price increases and overall GDP. This so-called “growth” can in part be explained by financial and real estate “bubbles,” but also by the use of credit, especially credit cards. Say you have several cards with a credit limit of $10,000 and your disposable income after taxes, rents, mortgages, food, transportation, etc on an income of $25,000 comes out to be $200 a month. That’s not much to drive a consumer economy. However, using credit cards, that—at least temporarily—increases consumer spending and helps spur economic growth (Germany’s export-driven economy benefited enormously by peripheral nations’ use of credit to purchase its products). Paying only the minimum for a time maintains the illusion of “growth,” but eventually the credit is maxed-out and no more consumer spending is possible. In fact, the minimum payments required exceeds the original disposable income amount, and requires cuts in the household budget, already under pressure from rising prices and stagnant income. The bank refuses to extend credit, so no further spending occurs from that venue. Growth thus goes into deficit, and job loss occurs. The rich with their increased largesse and lower taxes have proven to be unreliable in filling the consumer-spending gap, preferring to “save” their money in tax-exempt piggy banks. Government has been a reliable driver of growth and jobs in the past, but with fewer tax revenues from corporations and the rich, it cannot make-up for the deficiencies caused by foolish policies.

Meanwhile, the spending policies favored by the new French president have been called “anti-growth” rather than “anti-austerity” by those on the right. But as Warren Buffett has stated, higher taxes on the rich do not inhibit investment but increases it; to make more money, investors would need to invest more, thus increasing growth. The fact is that the evidence suggests that the austerity policies favored by the right have not produced the results they have claimed, and in Greece they have only created dysfunction and chaos and a potential turn toward the fascism of the 1920s and 30s. Maintaining a climate of fear of “change” that favors the wealthy and powerful at the expense of everyone else is not sound policy, but an inhuman effort to weigh against economic injustice by shredding social safety nets that may in the end consume the perpetrators as well. The lessons learned from the Great Depression about corporate and financial malfeasance have been lost, as well as that of recession kept in check by high marginal tax rates on the wealthy and increased, targeted government spending; these maintained growth, not inhibited them. It is only recently, beginning with Ronald Reagan, that the rich didn’t need to feel “guilty” about making as much as money as they possibly could, at the expense of the economic and social stability of the country. The reason why the current recession seems to have a long tail is due to the fact that because of the right’s “drowning” of government’s ability to intervene during tough times—after a 30-year process of lowering marginal tax rates on the most well-off Americans, reducing government spending, inhibiting its ability to make-up for loss of spending because of reduced incomes and the shipping of jobs overseas—all which in turn reduce the potential for economic growth.

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