My dead-tree New York Times aptly depicts the mass economic insanity now gripping the US and Europe. There are several related articles, none referring to the others, but they’re all part of the same story: Governments are on their knees from bailing out insolvent banks and rescuing their economies after the financial collapse, but further crippling themselves by pretending that punishing citizens via austerity will keep their economies from tanking further.
On the Times front page, top-right, we read about America’s hysteria over federal deficits. The article frets over whether Obama’s failed Deficit (aka “let them eat Catfood”) Commission can get even a majority, let alone the required 14 of 18 votes, to endorse measures already widely panned, partly because Simpson-Bowles merely wave their hands on health care costs that are the principal driver of structural deficit. Even worse, in the aggregate their proposals shift more wealth from the middle class and elderly to the richest 10 percent of Americans, while restricting the government’s ability to right the inequality. It doesn’t occur to the Times to hope enough members will have the courage and wisdom to just say NO!
The same article goes on to describe President Obama’s efforts to negotiate with Republicans about how large the tax gift should be to the richest Americans. If you’ve been following this “debate” and the White House negotiate-with-yourself tactics, you know the argument is over whether we should give the wealthiest 2 percent a $700 billion gift for ten years or only a $400 billion gift over ten years. You’re supposed to cheer for the “only $400 billion.” Or if they’re clever, the negotiators might decide now to give the same groups about $40 billion per year in gifts for a year or two and give the rest of the $400 bn to $700 bn to them later, which they undoubtedly will. These are what now pass for Serious people.
The only rational, moral response the public could make to the continuing massive wealth transfer to the rich would be to show up at the capital with pitchforks and run all of these rascals out of town. But you won’t find that in paper of record.
On the opposite side of the Times front page we read the first of several recent Times articles on the deepening crisis in Europe. It seems the Euro countries have been following advice similar to that urged by the Catfood folks and deficit hawks and it’s landed half of Europe in a mess.
Like the US, they’ve bailed out European banks without cleaning out the banksters or making the creditors pay for their reckless investments during the European credit/housing bubbles. So countries like Ireland or Portugal that bailed out their banks are now facing their own default risks, made worse by the fact there is no central fiscal authority to protect the larger economy, while a common Euro prevents individual countries from devaluing.
Meanwhile Europe’s own deficit hysterics — led by the central bankers — demanded each country impose severe fiscal austerity — you know, like the massive government spending cuts the Republicans and deficit hysterics are proposing for the US — and what has it gotten them? As Krugman et al predicted, it’s bought them declining growth heading for another recession, rising unemployment even before the worst austerity measures take hold, declining tax revenues, higher safety-net costs, which leads to failed efforts to achieve deficit reduction targets, which then require even harsher austerity measures, etc, with no end in sight. [And see DeLong on Eichengreen on Ireland] Predictable and predicted.
In between these two front page stories is a picture of protesters battling police in Italy over proposed austerity measures — similar pictures could have been used from Ireland, or Portugal, or France — in this case, education cutbacks that make it harder and more expensive to get an education to make you and your country competitive. If that seems stupid, just remember Americans are already seeing similar drastic budget cuts in their home states.
What’s astonishing about these stories is how disconnected they are, as though what’s happening there has no relevance to what could happen here. But the stories from Europe about failing governments, declining economies, growing unemployment and enraged citizens are teaching moments for America. This is where we’re headed, unless we reject the “reign of error” that Republicans pass off as “grownup conversation” in our nation’s capital. And there’s no excuse for it.
We’ve watched our own states slash budgets and lay off teachers, firemen, police. So we know that if US states — which are not sovereign with their own currencies — have to slash their budgets and/or raise fees and taxes and lay off hundred of thousands, that it will depress their economies and cause higher unemployment unless the federal government steps up to offset the economic contraction such actions create.
The Euro group has almost no ability for a centralized authority to offset the fiscal contraction in its Euro member states. But the US does have this authority, so it is not required to sit by helplessly and follow Europe’s fate. To borrow Krugman’s phrase, not using the tools we have to avoid the predictable catastrophe is not merely criminal, it’s a mistake.