Local Fights Against Austerity are Growing

A Movement is Afoot
by MARK VORPAHL


Between sequestration, with its damaging impact on workers and the economy, and the billions of dollars in cuts to Social Security, Medicare and other necessary social programs that President Obama is pushing, it is evident that the economic policies of both major parties are not intended to promote a recovery for working people.

You cannot lift up a nation’s economy while slashing away at its consumers’ pocketbooks. In order to justify their defiance of this elementary law, both Republicans and Democrats start talking the language of “austerity,” that is, the notion that economic policy must be guided by reducing budgetary deficits first and foremost, and that workers exclusively must be made to pay the cost.

Policies associated with austerity include the cutting of public programs, privatizing existing government assets, mass layoffs of public workers and wage freezes for those who remain, union busting in the public sector and the revising of labor laws to further enhance the power of employers at the expense of employees.

Enforcing these policies during a recession prevents a recovery. Economic theory predicts this and history demonstrates it. Why, then, would the politicians promote austerity? Because these policies assure that the 1% will be let off the hook from paying their fair share of taxes that help subsidize the social safety net, and will have vast pools of public capital opened up for their private investment.

Why worry about the overall economy when the real power brokers from the corporations and banks are making out just fine with austerity? The message seems clear: As long as Wall Street is enjoying the “recovery,” no one else gets to. Wall Street has used its vast wealth to lobby politicians for policies that are in its interests. In order for working people to climb out of the recession, they will have to organize in order to create their own power base.
Local Struggles

As already noted, austerity is being enforced on a national scale. Below the radar of news headlines, for the most part, the policies of austerity are spreading on a local level as well with even more devastating immediate impact. Along with this, there has been a growing grassroots opposition to austerity starting locally.

This is most visibly the case in Chicago where Mayor Rahm Emanuel plans to sacrifice 54 public schools on the alter of austerity and Obama’s “Race to the Top.” Thirty thousand students from primarily low-income black and Latino neighborhoods will be affected. Rising to confront Mayor Emanuel’s threats has been a grassroots opposition that was built from previous battles linking the Chicago Teachers’ Union’s interests with those of the working class communities at large. This was most evident at a large rally against the school closures on March 27.

In Detroit the movers behind austerity have taken their most politically extreme measures yet, putting the city ahead of the curve for what is likely to develop across the country. Michigan Governor Rick Synder has appointed Kevyn Orr, of Jones Day Law firm, as Detroit’s Emergency Financial Manager. Orr has the power to dismiss elected officials, tear up union contracts, privatize public assets and impose new taxes without a vote. He will use this power to enforce austerity. Though Orr has yet to unveil his plans, there have already been numerous protests and rallies, and the actions are likely to increase.

On the West coast at the end of April, hundreds rallied outside the San Jose City Hall to protest proposed cuts to neighborhood services and Mayor Chuck Reed’s threat to declare a fiscal emergency.

On April 11 in Oregon, a public budget hearing in which the Portland City Council intended to sell $21.5 million in cuts attracted over 400 Portland residents, overwhelming city staff. Many citizens spoke to the need to prevent the cuts and instead raise revenue from corporations rather than handing out taxpayer subsidies to them, an idea that received overwhelming support from attendees.

And at an Oakland City Council budget talk, a packed Chamber booed and jeered a presentation on Oakland’s fiscal future, chanting “Enough is enough!” The City Council is projecting a deficit ranging from $19 million to $26 million. Considering that there has already been a 20 percent reduction in the city’s full-time work force and that the city’s three major non-public safety unions are negotiating new contracts, there was no mood to accept the City Council’s austerity story.

In Newark, Illinois, around 1,000 high school students walked out of class last month to protest deep cuts to the district’s budget. Newark Superintendent Cami Anderson claims the district faces a $57 million deficit. Newark’s high school students, correctly, refuse to accept that they must sacrifice their education in order to fill this hole.

Growing Potential

This list over protests in the last two months is not complete. It does display some patterns, however. It shows how education, public workers and the communities they serve are the primary targets of austerity. That means a lot of people are taking hits.

The list also demonstrates how people become empowered when these constituencies work together in solidarity. Austerity promoters prefer to pit communities and/or unions against each other in a scramble to grab what remains of a shrinking budget pie. The events reported above show that a different reaction is possible — one that will strengthen people’s ability to powerfully confront their local governments.

Finally, these developments show it is necessary to go beyond the budget claims of the city government. Budget deficits are the product of allowing big business tax loopholes, obscenely low tax rates, and subsidies paid for by taxpayers. Those expected to bear the burden of cuts are not responsible for this.

In a time of high unemployment it is necessary to stimulate the economy by creating jobs. This stimulus should be paid for by the 1%.

Those uniting against austerity cuts could also demand what they stand for, that is, a budget that puts jobs, education and neighborhoods first rather than corporate profit. To effectively do so the unions and community groups fighting austerity can work together to build their own budget assembly to counter city governments’ “we are broke” excuses and popularize an alternative.

These local struggles and many more are a confirmation that austerity in the U.S. will be met with a fight. Though they are disconnected in terms of their organizing, they are a response to a national problem. This wave of local grassroots organizing shows the potential exists to galvanize a national movement against austerity.

This Modern Sequestration

The Sequester, Explained

—By Kevin Drum| Mother Jones

Where did the whole idea of sequestration originate? 

It goes back to 1985. The tax cuts of Ronald's Reagan early years, combined with his aggressive defense buildup, produced a growing budget deficit that eventually prompted passage of the Gramm-Rudman-Hollings Act. GRH set out a series of ambitious deficit reduction targets, and to put teeth into them it specified that if the targets weren't met, money would automatically be "sequestered," or held back, by the Treasury Department from the agencies to which it was originally appropriated. The act was declared unconstitutional in 1986, and a new version was passed in 1987.

Sequestration never really worked, though, and it was repealed in 1990 and replaced by a new budget deal. After that, it disappeared down the Washington, DC, memory hole for the next 20 years.

What about the 2013 version? Where did that come from? 

 In the summer of 2011, Republicans decided to hold the country hostage, insisting that they'd refuse to raise the debt ceiling unless President Obama agreed to substantial deficit reduction.

After months of negotiations over a "grand bargain" finally broke down in July, Republicans proposed a plan that would (a) make some cuts immediately and (b) create a bipartisan committee to propose further cuts down the road. But they wanted some kind of automatic trigger in case the committee couldn't agree on those further cuts, so the White House hauled out sequestration from the dustbin of history as an enforcement mechanism. It would go into effect automatically if no deal was reached.

In the end, no immediate cuts were made, but a "supercommittee" was set up to propose $1.5 trillion in deficit reduction later in the year. To make sure everyone was motivated to make a deal, the sequester was designed to be brutal: a set of immediate, across-the-board cuts to both defense spending and domestic spending, starting on January 1, 2013. The idea was that everyone would hate this so much they'd be sure to agree on a substitute.

Needless to say, no such agreement was reached. So now we're stuck with the automatic sequestration cuts.

How big is the sequester?  

You'd think this would be an easy question to answer. In fact, it's surprisingly complicated! Are you ready?

The basic amount of the sequester is $1.2 trillion in deficit reduction over 10 years. But when you reduce spending, you also reduce interest on the national debt. This means that we only need $984 billion in actual program cuts. And since it's for 10 years, naturally that means we divide by nine to get annual spending cuts of $109 billion. For FY2013, this comes to $12 billion per month, because there are only nine months from January (when the sequester begins) through the end of the fiscal year in September.

But wait! The fiscal cliff deal in January delayed the sequester until March 1, so it also lopped off two months of cuts. This means that the total amount of spending cuts for this year clocks in at $85 billion.

So what gets cut? 

The sequester is split evenly between defense spending and domestic spending. The domestic half has two parts: Medicare and everything else. For Medicare, the sequester specifies a flat 2 percent cut in reimbursements. Doctors will continue to bill at their usual rate, but they'll only receive 98 cents on the dollar. According to the Congressional Budget Office, here's how the whole thing nets out (see Table 1-2):

• Defense: $42.7 billion
• Medicare: $9.9 billion
• Other domestic: $32.7 billion

Aside from Medicare, how are the other cuts divvied up?  

The sequester legislation requires the cuts to come evenly from every budget account. This means everything (with a few exceptions) gets cut the same amount. This is an especially stupid way to cut spending, since everyone agrees that some programs are more important than others, but that's the way it is. If you really want to torture yourself, you can read this Office of Management and Budget report, which contains 224 pages listing the sequester amounts from every single agency in the United States government. It's followed by another 158 mind-numbing pages of agency accounts that are exempt from the sequester.

But as stupid as this is, don't get too excited about it. It's only for FY2013, which lasts seven more months. After that, although the total amount stays in place ($109 billion, split evenly between defense and domestic spending), congressional appropriations committees have much more flexibility about how to juggle the cuts.

Aren't we still in a recession? What are these cuts going to do to the economy?  

Technically, we're no longer in a recession, but there's no question the economy remains weak. A big bunch of dumb spending cuts is about the last thing we need.

That said, the actual impact of the cuts is hazy. Among private forecasting firms, Macroeconomic Advisers figures the sequester will cut GDP by 0.7 percentage points, while IHS Global Insight puts it at 0.3 percent. Back before the sequester was delayed, CBO estimated 0.8 percentage points. Given a consensus growth forecast of about 2 percent for this year, this is a fairly substantial headwind. In terms of jobs, it will probably increase the unemployment rate by about half a percentage point. This is why Fed chairman Ben Bernanke basically told Congress on Tuesday that they were nuts to let the sequester proceed.

That's all sort of bloodless. How about some horror stories? You know, three-hour waits at airports because of TSA cutbacks, food poisoning epidemics thanks to USDA cutbacks, that sort of thing?  

The White House has been making a lot of hay over its 50-state breakdown of cutbacks. California, for example, will lose 1,200 teachers, 8,200 Head Start slots, 49,000 HIV tests, $5 million in meals for seniors, etc. You can see the forecasts for your state here. Aside from that, Wonkblog seems to be the go-to site for alarmist coverage of the sequester. Brad Plumer has the impact on R&D spending here. In an interview with Ezra Klein, former NIH director Elias Zerhouni says it will be a "disaster for research." Suzy Khimm interviews a former Homeland Security official here who says smuggling will increase. And MoJo's own Zaineb Mohammed lists six ways the sequester will hurt the environment here, including higher risk of damage from wildfires.

That's terrible! Does anyone have a plan to avoid the sequester? 

 Sure. Sort of. President Obama has proposed a substitute that includes about $1.1 trillion in spending cuts and $700 billion in new revenue. It was dead on arrival because Republicans are flatly unwilling to consider any plan that includes higher taxes. Back in December, Republicans in the House passed a bill that would have kept all the domestic cuts and replaced the defense cuts with yet more domestic cuts, mostly to anti-poverty programs. It was DOA too, for obvious reasons. House and Senate Democrats have plans as well.

But the truth is that there's probably no deal to be made. Republicans won't accept tax hikes, Democrats won't accept any bill that's exclusively spending cuts, and neither party is willing to just kill the sequester outright, which is the most sensible option. For now, all that's really happening is that both sides are barnstorming the country blaming the other guys. Obama seems to be winning that battle at the moment.

The Dawn of Austerity in America

Distinctions of Little Difference


by JASON HIRTHLER


Since the rosy fingered dawn of austerity in America, the liberal media have consistently proclaimed that the Republicans are a deluded gang of filibustering rejectionists. By contrast, they make the rather more strident claim that, for all their faults, Democrats at least believe, as The New York Times columnist Paul Krugman puts it, “in letting its policy views be shaped by facts; the other believes in suppressing the facts if they contradict its fixed beliefs.” But is this true? Are Democrats a clear-eyed party of well-meaning centrists, and are conservatives a frothing admixture of venal Congressional lifers and mob-backed junior legislators, both taking their talking points from a dim confection of scripture and grainy clips of “Free to Choose”?

The Right—Delusional and Demented?

First, liberals seem to believe that the Republicans who push for austerity are ignorant knaves, a seething clan of badly misguided ideologues who whitewash their realities with the worst theoretical models to emerge from the Chicago School of Economics. For his part, Krugman has nobly piled fact upon fact in his columns and blogs, outlining the harshly regressive outcomes associated with spending cuts during economic downturns. Exhaustively argued, scrupulously referenced, Krugman is an economic champion of the liberal class. Even so, in articles like, “The Ignorance Caucus,” “Sequester of Fools,” and “Friends of Fraud,” Krugman asks, in a state of jaded disbelief, how could it be that, “Republicans are deep in denial about what actually happened to our financial system and economy.”

He’s not alone in this regard. Leslie Savan in The Nation also chalks up the deficit obsessions to the pitfalls of “groupthink,” a kind of innocent self-delusion that encourages “the punditocracy to repeat, despite incontrovertible evidence to the contrary, that austerity will pave toward economic growth.” Robert Reich, who regularly and expertly denounces austerity, also seems baffled by the apparent inability of Congress to look facts in the eye. Columnist Ezra Klein touts studies that confirm the myopia of GOP legislators.

But the facts suggest that conservatives foresee austerity’s aftermath quite clearly, but are simply disinterested. To put it bluntly, Republicans and their backers know precisely what they’re doing. They aren’t mathematically-challenged stooges fumbling away the American dream. They’re conniving dogmatists bent on real social change—for the worse. A recent joint investigation by Democracy Now! and the Center for Media and Democracy is rapidly exposing the fraudulent claims of the "Fix the Debt" gang, a group of at least 127 corporate CEOs led by billionaire Pete Peterson. Like their Congressional shills, the Fix the Debt thugs claim they want to salvage America’s economy from being wrecked by debt. But what lies just beneath the surface of this thinly veiled publicity campaign is a desire by corporate interests to decimate the New Deal and Great Society initiatives.

Why? For a couple of reasons.

First, because this faction of plutocrats and their confederates genuinely believe in the radical individualism they espouse: tax is theft, welfare is the path to dependency, and poverty is the rightful destiny of the dilatory and thriftless. And here’s the crucial verdict: if preserving the sanctity of individualism means America becomes a sea of indigence, so be it. If each of us controls our fate, and if our fate has led us to ruin, who’s to blame but ourselves? In this sense, we are witnessing the rise of a kind of secular Calvinism in which our destinies reveal our character.

Second, eviscerating the safety net is a good bottom-line bargain. A dramatically enervated and sickly state, bereft of its capacity to regulate, stripped of its assets, and shorn of its social mandate, is a state deterred from taxation for want of cause, and too enfeebled to counter the rapacity of monopoly capital. Capital is thus freed to cannibalize labor. Like a mining colony in a jungle with natives swept aside, the drills won’t cease until every fluid drop and mineral grain of profit is safely nestled on a northbound container vessel. Anything to stave off a declining rate of profit.

The related claim that our half-sighted multinationals needs to recognize that if American incomes continue to slide, the populace will no longer be able to purchase the products they peddle, is neither important nor novel for elite interests. Renewed lending and debt accumulation can falsely inflate another housing market, generating a freshet of new derivative plunder. But the larger point is that America is no longer corporate America’s primary growth market. China is. India is. Latin America is. The United States already looms large in the rear view mirror, diminishing by the day.

The Left—Decency Denied?

If conservatives are Machiavellis incarnate, what about those malleable Democrats? That glum tribe forever beset by weak temperaments, constitutionally incapable of taking a hard line, handicapped, perhaps, by their bottomless empathy. Along these lines, liberals are happy to claim that President Obama is simply being stonewalled by his Republican colleagues, who have capitalized on his naïve faith in human decency to press their savage austerity agenda on the population.

The President, exhausted by ceaseless good-faith attempts to reason with pathologically irrational extremists, finally capitulates. “Alas,” writes Krugman, fawning with forgiveness, “Mr. Obama did not stand firm.” The intimation is that the President is a paragon of progressive values, an emblem of liberalism clad in multi-cultural cloth. In fact, the multi-cultural is running interference for the multi-national.

But looking past Obama’s hypnotic rhetoric, one finds a political graph marked by one artificial crisis after another, perpetrated by Democrats and Republicans alike. The debt ceiling, the fiscal cliff, sequestration. Afghanistan, Iraq, Iran. Every one a politically manufactured, fear-mongered crisis. Every one carrying a trillion-dollar price tag. Every one a bipartisan swindle. It’s Disaster Capitalism par excellence, as Naomi Klein laid out in her bestseller The Shock Doctrine, which popularized how crises are manipulated to justify the introduction of fiscal austerity.

While Republican intransigence—cemented by record filibusters in the last two years—has muddled the president’s efforts to add some progressive sops to legislation, an obsession with conservative obstructionism obscures the bipartisan foundation of the deficit debate. From the earliest days of his presidency, Obama signaled that “entitlement reform” was a central plank in his agenda, offering up these sacrificial lambs marinated in talk of “bitter pills” and “reasonable” spending cuts. Not only did Obama appoint Alan Simpson and Erskine Bowles to head his deficit commission, knowing they were deficit hawks of the highest order, but Peterson’s Fix the Debt gang grandly supported Simpson-Bowles precisely because it advocated the dramatic spending cuts both parties favor. Yet former New York Times editor Bill Keller recently claimed that Obama has not embraced the commission’s wisdom.

Obama’s own 2011 plan—different from the commission’s version in that its tax revenues were at least mildly progressive—also aimed at $4 trillion in deficit reduction, with all three social programs included for euphemistic “reforms.” Sequestration itself was hatched in the White House, a trigger mechanism that creates the illusion that Congress is at the mercy of a higher law and, of course, conservative hordes brandishing wildly underlined copies of Atlas Shrugged. Likewise, the notion that the Senate can only pass a bill with a super-majority of sixty is a technicality that can be dispatched by a simple Democratic majority. But the decorum of tradition trumps the exigencies of an anonymous populace. In the end, the policy prescriptions of both parties are overwhelmingly austere.

When the administration does differ from its conservative counterparts, largely in the desire to impose a degree of taxation to polish its progressive credentials, the onus falls largely on the working class. Obama’s much-celebrated tax on the wealthy is a clever sleight of hand: the tax hits a couple of million Americans whose incomes exceed $450,000, but the tax only applies to income over $450,000 and only by the smallest of marginal increases. Cobbled together with slight increases in capital gains taxes, new Obamacare taxes, and fewer deductions for the wealthy, the 1 percent will cede an extra $62 billion a year. By contrast, the media-slighted payroll tax will sift $95 billion in 2013 alone from the pockets of the working class. Although initially and intelligently proposed by Democrats as a stimulative measure in 2010, the payroll tax was allowed to expire with the consent of both parties. Treasury Secretary Timothy Geithner said he saw no reason to extend it. (Granted, it is hard to discern the smoking ruin through the cloud bank.) Nor did Obama bother to include it in his 2013 budget. Yet the tax penalizes 160 million working class Americans with a 50 percent increase in what amounts to a nationwide wage cut, wiping out the wage gains of 2012.

If it’s not austerity, it’s elitism. Both are now beltway consensus; the notion of handcuffed liberal do-gooders has worn thin, exposing the Janus face of progressive Washington—rhetorically populist, practically bought.
The Media—Paying the Price of Inclusion?

As crass and crude an image as it may seem, the Oval Office is little more than a luxury suite being peddled to palm-greasing plutocrats, their lobbyists, and the venal sophists whose pockets they ply with cash. The political hue is never red or blue—but always green. It is ever Spring in Washington. But this truth, that both parties are consciously visiting hardship on a defenseless populace—is unspeakable. That Obama knows he’s favoring wealth at paucity’s expense—unmentionable. That conservatives know austerity will crush vast majorities—unprintable. And to coin a lie of this magnitude and continue to employ it as ideological currency requires you to simply elide sizeable sections of reality from your worldview.

Perhaps the price of writing for a mainstream paper like the Times, then, is silence on this point and substituting for it the fallacy that our leaders have honorable intentions. That purity of motive is part of our American exceptionalism, our ahistorical singularity. But even if it were so, and by our well-intentioned deeds we were unwittingly paving a highway to hell, how would this be any more ethically commendable than the brainwashed suicide bomber who believes liked a blind Bush that his actions are pure? Both are tragedies of delusion. Yet evidence abounds as counterpoint. The powers that be know exactly what they’re doing and attempts to render their Machiavellianism more palatable by obtruding it from sight, is itself a form of complicity. As Noam Chomsky once noted, there isn’t much value in speaking truth to power; they already know it.

'Collusion With Austerity' Will Sink Obama, say Progressives

Tuesday, February 26, 2013 by Common Dreams  
An 'elite bipartisan consensus' sends the bill for Wall Street’s mess to the middle class and the president has done far too much "playing along"
- Jon Queally, staff writer


As the deadline of the so-called "budget sequestration" nears, progressives are warning President Obama that his obsession with giving credence to the "cut the deficit" antics of Republicans is a trap and that if Democrats don't jettison the failed "economics of austerity" immediately, they'll have no one to blame but themselves.

Richard Eskow calls it "Washington's Stupid, Destructive Game."

Robert Kuttner, his colleague at the Campaign for America's Future, names it "The Sequestering of Barack Obama," while The Nation's Katrina vanden Huevel says it's not the president, but "common sense" that's being locked up in Washington as Democrats systematically trade the proven economics of stimulus spending—which has so far saved the economy from ruin following its collapse in 2008—for the 'slash and burn' politics of the Republican party.

With the usual candor, Princeton economist and Nobel laureate Paul Krugman marked the whole debacle down last week as the "Sequester of Fools."

What these progressive voices have in common (in addition to acknowledging the ridiculous nature of the debate by Beltway establishment figures) is agreement that President Obama and the Democrats—far from winning a public opinion "blame game"—are sadly playing directly into the hands of a Republican Party hell bent on pushing an economic austerity agenda on the country at a time when the exact opposite course is needed.

And the chorus of alarm against the President's strategy—namely his willingness to cut programs like Social Security and Medicare while simultaneously embracing the flawed wisdom of budget cuts and deficit reduction—is growing.
As recently as today, in remarks made at a shipbuilding plant in Virginia, Obama said:

Now, the reason that we're even thinking about the sequester is because people are rightly concerned about the deficit and the debt.

But, according to economists, that's exactly "not right." That's exactly "wrong." And this is the problem.

Writing at The American Prospect, Kuttner explains:

Though too few Democrats will come right out and say it, there is a far better path to both economic recovery and eventual stabilization of the debt ratio. We need to increase public spending in the next few years, using both deficit spending and higher taxes on the wealthy, to get the economy back on a high-growth path. Taxes on the wealthy are better put toward public investment than to deficit reduction. Taxing the rich is far less of a hit to purchasing power than hiking taxes on working families, who spend nearly all of their disposable income. With a program of economic expansion, we can reach a stable long-term debt ratio, but at a higher level of economic output and a more broadly shared prosperity. The goal is economic recovery—and the recovery improves the debt ratio, not the other way around.

Among the economists in this camp are Nobel laureates Paul Krugman and Joseph Stiglitz, as well as Larry Mishel of the Economic Policy Institute, Dean Baker of the Center for Economic and Policy Research, James Galbraith of the University of Texas, and former Biden chief economist Jared Bernstein. In a recent article for the Economic Policy Institute, economists Josh Bivens and Andrew Fieldhouse observed that the “output gap”—the difference between what the economy is producing and what it is capable of producing—is now about a trillion dollars a year. If you cut the budget in such circumstances, you slow growth and get further away from stabilizing the debt ratio. The problem is that these people are not part of the conversation at the White House, which is a dialogue among Obama’s top aides, the corporate austerity-mongers, and Republicans, all of whom believe in deficit reduction.

At the Center for Economic and Policy Research, Dean Baker says the clear problem is that both parties have played into the idea that deficits are a problem when, in fact, the opposite is true.

"Rather than being a bad thing," Baker writes, "the deficit is providing a needed boost to the economy." And challenging the idea that deficit reduction will spur private spending, he adds: "There is no plausible story whereby private-sector demand will fill the gap created by a smaller deficit."

"Colluding in the politics of budget austerity has left Obama with no real capacity to offer the public investment that the economy needs for a robust, broadly-based recovery, and leaves him with the prospect of a weak economy between now and the end of his term–unless he drastically shifts course and repudiates the entire view of the budget and the economy." -Robert Kuttner

Robert Reich, UC Berkeley economist and former labor secretary, argues that unless Obama and the Democrats confront the two-headed lie of "austerity economics and trickle-down economics" pushed daily by the GOP, "the nation will continue to careen from crisis to crisis, showdown to showdown."

The problem is not deficits, according to Reich, but "too few jobs, lousy wages, and slow growth." He continues, "Cutting the budget deficit anytime soon makes the problem worse because it reduces overall demand. As a result, the economy will slow or fall into recession – which enlarges the deficit in proportion."

If you want proof, says Reich, just look at what austerity policies have done to economies across Europe.

Yet, as vanden Huevel writes, "most of Washington — from the newly reelected Democratic president to the self-described insurgent Tea Party Republicans — is ignoring this reality to focus on cutting deficits." She writes:

The Republican Congress seems intent on letting the “sequester” take place — the idiotic across the board cuts that were explicitly designed to be anathema to both parties. Senate Democrats call not for repealing these cuts, but for “paying for” delaying them for a few more months.

Why this fixation? Deficits aren’t careering out of control. In fact, as the Congressional Budget Office reports, in relation to the economy, the deficit has fallen faster over the past three years than at any time since the demobilization after World War II. Calls for cutting Medicare benefits ignore the reality that the slowing rise in Medicare costs has already cut about $500 billion from its projected costs over 10 years compared to estimates made two years ago.

Meanwhile, Kuttner argues that by playing into the GOP's mantra on 'cutting deficits' as a legitimate strategy, Obama has "miscalculated both the tactical politics of the sequester and the depressive economic impact of budget cuts on the rest of his presidency."

He continues:

Long term, colluding in the politics of budget austerity has left Obama with no real capacity to offer the public investment that the economy needs for a robust, broadly-based recovery, and leaves him with the prospect of a weak economy between now and the end of his term–unless he drastically shifts course and repudiates the entire view of the budget and the economy.

And later notes:

As the Greeks have painfully learned over and over again, you can cut spending and raise taxes, and the deficit just keeps growing larger—because you are destroying your economy. The same has been demonstrated for Spain, Portugal, and Britain. Something similar occurred on a more modest scale in the fourth quarter of 2012 right at home.

And George Lakoff, professor of linguistics and political analyst, says that until Democrats confront the GOP's moral stance—one that actually favors the pain imposed by austerity—the Democrats and Obama continue to miss an opportunity to discuss the "heart of the problem" that undergirds the ongoing series of fights over the economy. What that demands, says Lakoff, is a vocal challenge on the part of the Democrats and progressives to address the "moral divide at the heart of our public life."

"Whether they know it or not, those pushing for smaller deficits are promoting less growth and more unemployment." - Dean Baker, CEPR

Taking a deeper look at Republican intentions, Eskow says the ongoing debate amounts to a "hostage crisis" in which austerity economics is being forced on "an unwilling population – [cloaked] in a false debate about how to do it, not about why we shouldn’t do it at all."

And to Republicans, argues Kuttner, it hardly matters if the fight now hurts them in the short term, when their eyes are fixed on 2014 and 2016 when few voters will likely remember the current series of events.

"An austere budget slows the recovery and leaves the Democrats with no economic bragging rights going into 2014 and 2016," he writes.

But would the GOP be so cynical as to trash the economy for political gain? Yes, says Kuttner, before concluding that in upcoming election cycles: "nobody will much remember who was more at fault in the sequester battle of early 2013. The voters will be looking at their own economic situation, and it won't be pretty."

And as Baker concludes: "Whether they know it or not, those pushing for smaller deficits are promoting less growth and more unemployment. It would be the best possible outcome of the sequester debate if this simple point could be made in polite circles in Washington again."

But it's not to be. As vanden Huevel laments:

This elite consensus ignores how we got into the fix we are in. The deficit was under 2 percent of gross domestic product in 2007 and the debt under 40 percent of GDP when Wall Street’s wilding blew up the housing bubble and drove the economy into the Great Recession. Wall Street got bailed out, but the deficit soared to 11 percent of GDP and Americans lost nearly 40 percent of their wealth. You’d think anyone so fixated on avoiding another Pearl Harbor moment would focus on making certain Wall Street was properly shackled, and the too-big-to-fail banks broken up.

But the elite bipartisan consensus is focused on sending the bill for Wall Street’s mess to an already battered middle class, by weakening the basic pillars of a family’s economic security — Social Security, Medicare and Medicaid. And they are a lot closer than anyone thinks. The sequester is just the first of a series of austerity bombs that the Republican Congress will use to extort cuts in these benefits.

It’s time to stop such extortionists from holding our country’s economic future hostage.

The most notable hostage of the austerity trap, however, seems to be President Obama himself. And unless he changes course soon, his critics say, it will be more than his legacy that gets sunk.

Obama Could End the Sequester

President Obama has revealed his real preferences in the current blame game by not calling for a clean bill eliminating the Sequester.
February 27, 2013 | By William K. Black

We are in the midst of the blame game about the “Sequester.” I wrote last year  about the fact that President Obama had twice blocked Republican efforts to remove the Sequester. President Obama went so far as to issue a veto threat to block the second effort. I found contemporaneous reportage on the President’s efforts to preserve the Sequester – and the articles were not critical  of those efforts. I found no contemporaneous rebuttal by the administration of these reports.

In fairness, the Republicans did “start it” by threatening to cause the U.S. to default on its debts in 2011. Their actions were grotesquely irresponsible and anti-American. It is also true that the Republicans often supported the Sequester.

The point I was making was not who should be blamed for the insanity of the Sequester. The answer was always both political parties. I raised the President’s efforts to save the Sequester because they revealed his real preferences. Those of us who teach economics explain to our students that what people say about their preferences is not as reliable as how they act. Their actions reveal their true preferences. President Obama has always known that the Sequester is terrible public policy. He has blasted it as a “manufactured crisis .”

The administration has stated publicly the three reasons this is so. First, the Sequester represents self-destructive austerity. Indeed, it would be the fourth act of self-destructive austerity. The August 2011 budget deal already sharply limited spending and the January 2013 “fiscal cliff” deal raised taxes on the wealthiest Americans and restored the full payroll tax. The cumulative effect of these three forms of austerity has already strangled the (modest) recovery – adding the Sequester, particularly given the Eurozone’s austerity-induced recession, could tip us into a gratuitous recession.

Second, the Sequester is a particularly stupid way to inflict austerity on a Nation. It is a bad combination of across the board cuts – but with many exemptions that lead to the cuts concentrating heavily in many vital programs that are already badly underfunded.

Third, conservatives purport to believe in what Paul Krugman derisively calls the “confidence fairy.” They assert that uncertainty explains our inadequate demand. The absurd, self-destructive austerity deals induced or threatened by the Sequester have caused recurrent crises and maximized uncertainty. They also show that the U.S. is not ready for prime time.

When he acted to save the Sequester, Obama proved that he preferred the Sequester to the alternative. When the alternative threatened by the Republicans was causing a default on the U.S. debt (by refusing to increase the debt limit), one could understand Obama’s preference (though even there I would have called the Republican bluff). The Republicans, however, had extended the debt limit in both of the cases that President Obama acted to save the Sequester in 2011.

Similarly, President Obama has revealed his real preferences in the current blame game by not calling for a clean bill eliminating the Sequester. It is striking that as far as I know (1) neither Obama nor any administration official has called for the elimination of the Sequester and (2) we have a fairly silly blame game about how the Sequester was created without discussing the implications of Obama’s continuing failure to call for the elimination of the Sequester despite his knowledge that it is highly self-destructive.

The only logical inference that can be drawn is that Obama remains committed to inflicting the “Grand Bargain” (really, the Grand Betrayal) on the Nation in his quest for a “legacy” and continues to believe that the Sequester provides him the essential leverage he feels he needs to coerce Senate progressives to adopt austerity, make deep cuts in vital social programs, and to begin to unravel the safety net. Obama’s newest budget offer includes cuts to the safety net and provides that 2/3 of the austerity inflicted would consist of spending cuts instead of tax increases. When that package is one’s starting position the end result of any deal will be far worse.
In any event, there is a clear answer to how to help our Nation. Both Parties should agree tomorrow to do a clean deal eliminating the Sequester without any conditions. By doing so, Obama would demonstrate that he had no desire to inflict the Grand Betrayal.

Funnies

As Predicted, Austerity Policies Send US Economy Downward

Thursday, January 31, 2013 by Common Dreams
As if the lessons of recent European policies weren't enough or a century of proven economics, the US trudges towards stagnation and financial pain... by choice
- Jon Queally, staff writer


Progressives economists who spent much of the last four years warning against the implementation of austerity policies in the US did not share in the surprise expressed by many lawmakers and mainstream pundits when new GDP data released Wednesday showed Q4 growth trending the economy back towards official recession.
No amount of evidence, advice or warning seems capable of moving lawmakers, including President Obama, away from the economic madness of austerity. As warned by experts not cowed by the "deficit hawk" alarmists who dominate the national conversation on the economy, the dip in growth was not the result of "uncertainty" in the private sector or the future demands of public spending obligations, but rather on the contraction of public spending and the tax increases prematurely foisted on low-income and middle class workers in the form of a payroll tax increase that took effect on January 1.

As Washington Post policy analyst Ezra Klein writes:

"The government is hurting the recovery, and badly. But it’s not because it’s spending too much, or because of concerns over future policy. It’s because government, at all levels, is spending and investing too little."

And as Robert Borosage, from the Campaign for America's Future, told the Huffington Post: "Inflicting austerity on a weak economy is ruinous and is likely to drive us back into a recession."

"Those dismissing the downturn as due to an odd drop in government spending should consider that more of these are on the docket," Borosage continued, making reference to further government spending cuts, known as 'sequestration,' that will likely be implemented in March.

And, "It's certainly the case that the disappearance of the payroll tax holiday is a drag on the economy," said Chad Stone of the Center on Budget and Policy Priorities.

Meanwhile, Josh Bivens and Nicholas Finio—analysts at the progressive Economic Policy Institute—said the new GDP numbers were disappointing, but argued the economy wasn't likely to teeter back into full recession. The essential lesson, they said of the report, was an easy and long-established one: when government spending contracts, so does a struggling economy.

"When government spending drops, the economy suffers," they said. "The rest of the economy is simply not growing strong enough to make up for losses in demand due to government spending cuts."

"Wednesday's GDP report, while overstating the current weakness in the economy, clearly illustrates what economists have known since the 1930s: Government fiscal contraction during periods of excess capacity—particularly when interest rates are already near-zero—is exactly the wrong thing to do."

And the Huffington Post adds:

Congress is still driving headlong into the forced austerity known as sequestration, scheduled to take effect in March, which requires across-the-board spending cuts at the Pentagon and among domestic policy programs.

"Today's GDP numbers show the toll that political conflict over fiscal policy is taking on U.S. economic growth," said Adam Hersh, an economist at the Center for American Progress, a think tank closely allied with the Obama administration. "The 0.1 percent economic contraction puts the United States on the precipice of recession. Our economy would certainly have grown at a faster rate last quarter, were it not for political brinkmanship over the debt ceiling and the risk of sharp fiscal contraction in the form of automatic 'sequestration' budget cuts. That contraction is now unfolding."

Warnings about the dangers of austerity have been growing louder in recent months, even from sources that conventionally applaud austerity regimes. In October, the International Monetary Fund issued a report concluding that global policymakers had dramatically underestimated the significance of government spending during a recession. As a result, lawmakers expecting modest drags from austerity instead saw their economies plunge back into a devastating recession. The United Kingdom, where unemployment now stands at 7.7 percent, has experienced a triple-dip recession. In Spain and Greece, unemployment is over 25 percent, with savage humanitarian consequences: HIV infections in Greece are up by over 1,500 percent since the austerity campaign began in 2010.

And Klein concludes his analysis on the situation in the US this way:

So yes, the government is hurting the recovery. But it’s not because of deficits or uncertainty, or at least, it’s hard to find evidence for either theory. The real, provable damage the government has done to economic growth in recent years has been in cutting back on spending and investment since 2010.