Scott Walker, Mitt Romney, Paul Ryan, Ron Johnson…and any other right-wing ideologue need do one simple thing to really begin moving this economy forward. Accept the economic facts of our current situation, and admit to the failure of austerity – ever. Easier said than done. To the likes of Ryan et al, the cause of austerity is a religion. A religion being written and funded by the few multi-billionaires who stand to amass further power and influence; all while the middle class collapses under the weight of an entirely preventable depression. How else does one justify their behavior in light of fact? Ideology and religious crusade are the only explanation to the blind faith of austerity they now follow to the cliff.
We need not plunge into the abyss – economic recovery is a relatively simple matter. There is historic precedence, and some of the best economic minds in the world have defined the solution recently.
“A MANIFESTO FOR ECONOMIC SENSE” was published last week by Jonathan Portes, Paul Krugman, Barry Eichengreen, Simon Wren-Lewis, Brad DeLong, and John Van Reenen. The “Manifesto” is written to dispel the factual and historical inaccuracies behind worldwide austerity measures. Proponents of austerity have relied on 1930’s economic policy, which is rife with “profound errors” about the causes, nature, and response to the current crisis.
The CAUSE of this crisis is not (as the right supposes) “irresponsible public sector (government) borrowing”, with very few exceptions (one being Greece). The factual CAUSE was excessive, unregulated PRIVATE sector borrowing and lending, and over-leveraged banks. The collapse of this private sector “bubble” led to massive falls in output (tax revenue). The current large government deficits are a consequence, not the cause of the crisis.
The NATURE of the current crisis is being mischaracterized by the extreme right. When the worldwide bubbles burst, the private sector immediately slowed spending to pay down its past debts. A rational response for individuals – but (as in 1930), COLLECTIVELY this is self-defeating. In a national economy, one persons spending is another person’s income. Private sector spending cuts, coupled with recent public sector spending cuts have resulted in a spending collapse – and economic depression. This has worsened the public debt situation. Again a consequence of the crisis.
The right-wing RESPONSE in this crisis is misguided. To further push austerity at a time of economic depression (the stagnant nature of this “recovery” has been termed a “depression” by the authors of the manifesto) is, again, self-defeating. When private sector spending is collapsing, public sector must stabilize to sustain spending (again, a lesson from 1930). Continuous public sector spending cuts (as Mitt Romney, Paul Ryan, Scott Walker, etc. advocate), or middle class tax increases (as Scott Walker’s Act 10 results in) will worsen the depression as revenue continues to plummet. We are seeing this effect in Wisconsin – as projected revenues are contracting and job growth is stagnant.
With interest rates near zero, monetary policy can only do so much. The focus has to be on increased employment, before long-term unemployment becomes endemic. This long-term unemployment problem leads to the flaws in austerity proponents’ arguments:
Flaw #1 – “Austerity will increase confidence; deficits will dampen that confidence and cause interest rates to soar.” There is absolutely no evidence to support this claim. On the contrary, many governments have record deficits and record low interest rates – where there is a functioning central bank. In Japan, debt is 200% of GDP, yet Japan has low interest rates. Moreover, the credit downgrades in Japan have not resulted in higher interest rates.
The IMF has studied 173 cases of austerity budget cuts in individual countries - the result has ALWAYS been economic contraction. Austerity measures have NEVER resulted in economic growth.
Flaw #2 – “There are structural ‘Supply Side’ issues in output.” As evidenced from 1930-1940, this is wrong. Industry and business are currently highly productive – there is simply not enough consumer demand to drive a long-term recovery. The lack of well-paying jobs and employed individuals has led to a contraction of spending – all CONSEQUENCES of the current crisis.
The deficit is simply not our greatest economic threat. In this time, we have the historic knowledge and facts to end this depression. It is only ideology and greed that is stopping us. In this day, it should be unacceptable to all of us that mistaken and misguided fears over deficits and interest rates “outweigh the horrors of mass unemployment.”
This economic truth deserves to be front-and-center for the coming months. Visit the website (http://www.manifestoforeconomicsense.org/), sign the manifesto, and share this information with everyone, politicians, candidates, and media. Next time you see Paul Ryan, ask him to name a time in history when austerity led to economic growth…and watch his head spin.