We should have learned from our experience recovering from the Great Depression of the 1930s that government austerity programs only make the economy worse in the face of an economic collapse. The Hoover and Roosevelt administrations tried government cutbacks without success.
Now, Britain, Ireland and many other European countries that have been drastically cutting spending to balance budgets are demonstrating this again.
Sadly, so are we.
The United States pulled out of the 1930s crash with New Deal government initiatives, and finally with World War II spending, and the postwar programs, such as the GI Educational Bill, subsidization of housing and more.
The huge debts amassed by these expenditures were paid off by a revived economy.
Slashing federal spending and cutting 600,000 state and local jobs is counterproductive. This is a government-induced fiscal contraction on top of the private economy’s.
The idea that “Americans are used to living on a budget,” as Republican House Speaker John Boehner phrased it, is a misleading old saw. We have the highest home ownership because most families borrow in order to buy a house. Most of us don’t plunk down $25,000 or so to buy a car – we go into debt.
The same for education spending and credit card debts. Indeed, without such indebtedness, our economy would never expand properly.
Corporations borrow, too.
Banks speculate wildly – witness Bank of America recently – and with depositors’ government guaranteed funds.
Let’s not forget that what most conservative austerity advocates want is not really less government spending, but lower taxes on the rich and lower social spending.
Republican administrations, from Reagan through George W. Bush, while preaching balanced budgets, increased the debt much faster than Democrats (Clinton and Carter). And Bush’s tax cuts, wars and drug-company friendly Medicare bill account for large parts of the past three years’ debt.
The Paul Ryan budget proposal, dutifully passed on a Republican party line and endorsed by Mitt Romney, claims it will reduce the debt, but only by using unspecified revenues.
Cutting public budgets and employment when there is already high unemployment just sinks us deeper into the hole, with fewer consumers able to buy as much. We have 13 million officially unemployed, not counting part-time and discouraged workers.
Our private sector has been laying off by the hundreds of thousands. Yet corporate profits are up, along with ex-ecutive pay. The top 50 Pittsburgh area CEOs’ pay was up 12 percent last year, averaging $7.3 million. And that’s just Pittsburgh – CEOs nationally average $11 million.
In contrast, unemployment benefits have been cut back.
Eleven million homeowners owe more on their houses than they’re worth.
Even many recent college graduates are unemployed or employed in low-pay, non-graduate-type jobs, or even unpaid internships – the latter their gamble that these might lead to real jobs.
And those from poorer- or medium-income families often face tens of thousands of dollars in debts. These slow career starts, or no starts, will redound unfavorably throughout their working lives. Economist Paul Krugman suggests that the real burden on future generations isn’t big government debt but delayed career starts and lower paying jobs for today’s youth, the latter leading to lower tax support of government.
Businesses and conservative politicians see this crisis as a good opportunity to cut wages and benefits of both public and private workers, to cut social support programs and get rid of unions. Republican politicians have never favored Social Security and Medicare, except grudgingly. The Paul Ryan Republican plan will jeopardize Medicare by making it into a voucher plan dependent on private insurance. It proposes large cuts to income tax and corporate tax rates, further benefiting the wealthy.
These proposed tax cuts are not liable to get the economy moving. Corporations – such as Hewlett-Packard, about to lay off 30,000 workers – are downsizing their labor forces.
State and local governments, which are savaging school budgets and cutting support programs, need federal help. The Obama stimulus probably kept us from a full-fledged depression, but was not enough to prevent a long-term decline. As we should have learned from the 1930s and the damage austerity has done to Europe since the economic crash, we need a more active federal effort. Too many Americans are suffering.
Jim Scofield of Richland Township is an associate professor emeritus of English at Pitt-Johnstown.
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