Europe Rejects Austerity. Will the U.S.?

Europeans across the continent are rising up against austerity policies — turning out politicians who enforce them, no matter what their party allegiance. Yet even as the European public rejects austerity, Washington elites increasingly favor it. If pursued, however, it could well face a similar public rejection here.

We’re heading into a bitter, negative and expensive presidential race. Yet the elite consensus is focused not on the election but on the lame-duck session that comes after the votes are tallied. In those few weeks, the debt ceiling has to be raised, even as the automatic sequester from the last debt-limit showdown is set to force a 10 percent cut from the military as well as domestic discretionary spending. The Bush tax cuts, payroll tax cut and extended unemployment insurance all are due to expire.

This is a recipe for recession — or worse. So most everyone assumes there will be a deal. And an elite consensus is congealing on its terms.

The assumption is that any agreement will look something like the abortive “grand bargain” that President Barack Obama agreed to last summer in talks with House Speaker John Boehner (R-Ohio). Or like the proposals made by the co-chairmen of the President’s Deficit Commission, former Sen. Alan Simpson and Erskine Bowles (but ultimately rejected by the full panel).

Both deals anoint deficit reduction — austerity — as the priority. Both assume mass unemployment as the new normal. We need to focus on getting our books in order, the consensus holds, not on jobs.

Both also assume that “shared sacrifice” will define the terms of the deal. Democrats will agree to support cuts in entitlements — Medicare, Medicaid and Social Security. Republicans will accept tax reforms that end raising net revenue. Both accept continued discretionary spending cuts. Beneath the consensus, needless to say, there will be a fierce debate over terms — on the mix of spending cuts to increased revenue, military to domestic budget cuts, what tax and entitlement reform will entail.

Largely ignored, however, is how divorced this elite consensus is from what most Americans say they want. The “grand bargain” reflects the priorities of the few — not the many.

The Washington elites seem oblivious to the fact that the world has shifted dramatically since Simpson-Bowles or the grand-bargain negotiations. Europe ran a real world experiment on austerity — and it produced increasing unemployment, growing misery and rising opposition.

Meanwhile, Occupy Wall Street has put inequality — and the struggling middle class — at the center of the U.S. political debate, calling into question the whole notion of “shared sacrifice.” The public grows increasingly skeptical about the basic assumptions of the elite consensus.

Poll after poll show the American public’s chief concerns are jobs and the economy — not deficit reduction. The Peter G. Peterson Foundation just released a poll — the first of many, no doubt — proving the obvious: Americans think deficits are a major problem and are ready to “sacrifice.” People are indeed worried about deficits — but not at the cost of jobs.

Supporters of the grand bargain paper over this divide by arguing that deficit reduction is vital to rebuild the confidence of investors and entrepreneurs and will help stimulate growth. And public support for reducing deficits is, in large part, because they believe it will help the economy.

In this country, austerity would be inflicted on an economy still struggling to recover from the Great Recession. Most Americans don’t believe the recovery has even started. Twenty-two million people remain in need of full-time work. Median wages continue to fall. One in two college graduates under age 25 is jobless or underemployed.

An agreement to cut spending and raise taxes will just add to this pain and slow an already faltering recovery. Popular opposition surely will rise.

Similarly, the public doesn’t share the elite’s appetite for “shared sacrifice.” The reality is most Americans already have sacrificed. Working families suffered declining wages and rising insecurity even before the collapse. They lost trillions in savings they thought they had in their homes when the economy blew up. They’ve suffered declining wages and rising insecurity [1] since the supposed “recovery” began.

The richest 1 percent captured a staggering 93 percent of all the income growth in 2010. The stock market came back — but housing values continue to fall. Banks got bailed out, but homeowners were on their own.

So when it comes to deficit reduction, Americans don’t embrace the terms of the grand bargain. Large majorities want Social Security and Medicare protected, not cut. More than three-fourths opposed cutting Social Security to reduce the deficit, according to a 2011 Wall Street Journal poll [2]. To strengthen Social Security, the most popular reform [3] is to lift the cap on payroll taxes — not raising the retirement age or jimmying the cost-of-living formula, as Simpson-Bowles has suggested. Even in the Peterson poll, voters express support for minor cuts (1 percent) in benefits to make Social Security “available for future generations.” Not for reducing deficits.

On domestic spending, six in 10 Americans would protect education from further cuts. When forced to choose what to cut, military spending tops voters’ lists.

But as we’ve learned from Britain, to Spain, to Greece, austerity bites. It throws people out of work, pushes weakened economies back into decline and ratchets up debt — since revenues decline and unemployment costs soar.

And the Occupy movement has spread the word that the rich and corporations are not paying their fair share of taxes — a theme that Obama has now put at the center of his campaign. The “Buffett rule” is supported by 60 percent of the population [4]. They want to put a floor of 30 percent on tax rates for millionaires.

Large majorities also support cracking down on corporate tax havens, hiking taxes on corporations that ship jobs abroad, eliminating subsidies to Big Oil and other special interests. Voters don’t want their taxes hiked — but two-thirds support hiking taxes [5] on those making more than $250,000.

Yet the elite consensus scorns majority opinion. Politicians in both parties tirelessly talk about jobs, but it has become close to unthinkable to propose bold action to put people to work. There is no traction for a common-sense deal that would tie a major near-term program on jobs with a long-term plan to get our books in order.

And excluded from the deficit-reduction agenda is any plan that reflects the public’s priorities. That plan would protect Social Security, Medicare and Medicaid, and invest in education, research and development, and other areas vital to our future. We would pay for that by raising taxes on the wealthy and corporations and reducing our bloated military budget.

Then the plan would focus on fixing what drives our long-term deficit problem (and threatens to bankrupt families if not fixed) — our broken health care system. The scary long-term debt projections would be erased if we spent per capita on health care what other industrial nations spend — with better health results — a fact routinely ignored in deficit discussions.

The closest thing to this plan is the Congressional Progressive Caucus’s Budget for All. That budget puts jobs before deficit reduction, spending to put people to work in the short term. It could get our books in order by hiking taxes on the rich and corporations and reducing military spending, while protecting Social Security and Medicare. It achieves better deficit reduction than either the Republican Ryan plan or the president’s budget. But it is off the table in the negotiations over the establishment’s grand bargain.

There will be a deal of some kind after the November election. Its terms will be influenced to some degree by the election’s results. But no matter what the outcome — the evolving establishment embrace of austerity will most likely frame the discussion.

A bipartisan agreement along the lines of the “grand bargain” would gain elite approval and wide mainstream media support. And bipartisan cooperation is always popular — in the abstract.

But the grand bargain’s austerity policies would undermine growth, cost jobs and send a good portion of the bill to working families already struggling to stay above water. And that would only reinforce the sense of more and more Americans that Washington doesn’t work for them.

American leaders may just discover — as European leaders now are learning — that the public will turn against a deal that adds to unemployment even as it sends them a large part of the bill for cleaning up Wall Street’s mess. Majority opinion on these issues isn’t as malleable as the cognoscenti might think.

A grand bargain that gains bipartisan support in Washington may well end up generating bipartisan outrage across the country.

This article originally appeared in Politico. [6] It has been updated to state that the Peter G. Peterson Foundation was the source of a poll on the deficit.