Economic Rehab

Richard Eskow

“And in this week’s economic news: They tried to make us go to rehab, we said no, no, no …”

Last week the world noted the decline and death of Amy Winehouse with sadness but no surprise. What a tragedy, people said, that she kept following her self-destructive course even though everybody knew how it would end. Many of them said a silent prayer of thanks that they weren’t trapped in the self-created hell that’s born whenever someone knows they’re on a destructive course but just can’t stop..

And then some of them went back to pushing austerity economics on the people of the United States.

Economists across the political spectrum are telling our leaders that they’re on a dangerous path. This week’s figures from Great Britain confirm the destructive nature of radical austerity, and today’s economic report here at home shows us how misguided these austerity efforts truly are. Even organizations known for their austerity-minded approaches have told our leaders that this is the wrong time to push budget cuts. They’re telling Washington we must first stimulate the economy.

Washington’s answer? “No, no, no.”

In her many attempts at recovery, Amy Winehouse undoubtedly heard the popular twelve-step truism that “Insanity is doing the same thing over and over and expecting different results.” Austerity advocates tell us that we can “cut to grow” by keeping taxes low for the wealthy and reducing government spending.

As the two parties offer their competing visions of austerity, how has this economic cocktail worked in the past? Great Britain’s been practicing full-on austerity for a year, and this week we learned that economic growth hasn’t picked up the way that the bartender – I mean, the dealer – I mean, the austerity advocates have promised. In fact, it’s fallen to almost zero (0.2% in the last quarter). Meanwhile, government spending has already fallen in the US, too.

2011-07-29-TOTFEDSPENDINGASPCTGDP.JPG

This chart shows only Federal spending, so it doesn’t reflect additional cuts in state expenditures. But it illustrates the fact that spending cuts over the last ten years failed to produce jobs as promised. After a financial crisis caused by deregulation, the government spent a considerable amount of money. Some of that money was used to create jobs, and created 2 to 3 million of them. That wasn’t enough. But instead of making up the difference, they want to double down on cuts, even as today’s report shows us that spending reductions are leading to stagnation and increased unemployment.

A Goldman Sachs analyst estimates that austerity has already cost us more than 1% in GDP growth, observing that “”fiscal adjustment … (in) the first quarter of 2011 showed the largest negative impact of government spending (cuts) on real GDP growth since the mid-1980s.” Today’s economic reports reinforce his point by showing that growth has slowed to a crawl and is far below what’s needed to create desperately-needed jobs. As Dean Baker observes, government spending shrank at a 1.1 percent rate and demand is down sharply.

Our first forays into austerity have already hurt us badly, and all we can talk about is doubling down on the madness. Here’s another cliche Amy Winehouse probably heard somewhere along the way: “When you find yourself in a hole, stop digging.” Are we prepared to stop digging?

Not a chance. Democrats and Republicans are both offering different plans for more austerity, which has become our economic drug of choice. Economists have laid out a program of rehabilitation: 18 months to two years of targeted investment in jobs, growth, and recovery, a reduction in runaway military spending, and an end to unconscionable tax breaks for the wealthy. This period of recovery could then be followed to additional deficit reduction measures, which would be helped considerably by reductions in poverty and tax revenues from millions of re-employed Americans.

Washington to economists: “No, no, no.”

We don’t have the luxury of time or the moral right to be indifferent. The United States isn’t just addicted to austerity. It’s a “low bottom” case. We won’t rehash all the economic figures we presented earlier this week, but they’re truly staggering: Millions of people driven from the middle class into poverty. Trillions of dollars in lost wealth for the middle class – as the ultra-wealthy get ultra-wealthier. It spells the death of the American Dream, unless something is done soon.

Addicts will steal from their elderly parents to support their habits, and the country’s no different. Washington’s response to this madness is to propose cuts to Social Security and Medicare. And like an addict selling her furniture to score an 8-ball of cocaine, our leadership is now proposing cuts to vitally needed programs as well as excessive ones.

And like a sad-eyed torch singer gazing into a shotglass, we let the same old flames break our hearts over and over. They’re not the only voices out there, although they’re usually the only ones we hear. There are politicians in Washington who are willing to tell us the truth and lead us out of this morass we’re in. It’s time to stop “enabling” the other ones, the ones who are pushing the addictive illusion of austerity. When they come around next year asking for votes, millions of voters may tell them something they don’t want to hear:

No, no, no.

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