November 1, 2013 6:16 AM

Economics 101: Austerity doesn't work. Duh.

In a time of challenge and adversity, It’s human nature to want to hunker down. Some of us might even want to dig a hole, crawl into it, pull the covers over our head, and wait for trouble to roll on by. Self-preservation is perhaps the most basic human instinct…but that desire to protect ourselves and those people and things we hold dear can on occasion lead us astray. So it is with the debate over the budget deficit. If you listen to those on the Right, Job One (besides obstructing anything and everything Barack Obama stands for) is reducing the deficit. As they see it, the deficit is the ticking time bomb that we’re handing future generations. Failing to balance the federal budget now means that our children will be paying for our sins…and besides, what family or business could be run on deficit spending? AUSTERITY!! is the battle cry, and, so the argument goes, we can’t possibly hope to pull ourselves out of the current economic slowdown until we get our fiscal house in order.

Those of us on the Left don’t necessarily downplay the importance of the deficit, and indeed many are fully in favor of reducing it. They simply don’t see reducing the deficit as the Prime Directive, the thing that needs to be done before anything else. Of greater importance in their estimation is investing in education, infrastructure, health care…the things that government is supposed to do, and things that create large numbers of well-paying jobs. As you might imagine, this is the side of the fence I come down on…and for some very good reasons.

If you look through history for examples of countries that have employed an austerity strategy to pull themselves out of the economic doldrums…well, you’re going to be looking for a good long time. Austerity has never ended a recession here or anywhere else in the world. Reigning in public spending is quite simply a recipe for disaster. When government stops spending, the effects trickle down. People slow their spending, sales drop, companies slow hiring (if not stop altogether), and the downward spiral continues. You don’t prime a pump by draining the swamp, which is pretty much what the “deficit scolds” (Paul Krugman’s term) are advocating for.

It’s a simple fact that holds up to historical analysis: You can’t save your way out of a recession.

I listened to Larry Summers makes a very good argument for spending our way out of a recession. Currently, the federal government is able to borrow money at historically low interest rates. That’s money that we can, and should, be investing- in things like roads, bridges, sewers, water treatment plants, education, high speed internet networks, etc., ad infinitum, ad nauseum. The return on that investment will far outstrip the interest we pay on the borrowed money. We can create good, high-paying jobs, and the money generated and recycled back into the economy will in time get the economy back up to speed. The key is to look at it as “investment,” not “deficit spending.”

There’s a time to put a plan in motion to reduce the debt, but that time isn’t during the an economic downturn. Austerity doesn’t create jobs, it doesn’t facilitate investment, and it certainly doesn’t “prime the pump.” What austerity does do is drag the economy down even further as more people and companies cut back spending and government entities and eventually schools are forced to cut back due to declining tax revenues. Again, you can’t save your way out of a recession.

The deficit scolds ignore basic economic theory in order to push their pet agenda, and they do so at the risk of doing some significant damage. If you doubt me, take a look at what’s happening in Greece and throughout the poorer parts of Europe. The EU is forcing austerity on countries as the price for continued financial assistance, and the results are as predictable as they are avoidable. Austerity. Does. Not. Work. Period.

‘Course, I’m just a History major, right? What do I know?

(Oh, and the “Why can’t we handle a government’s finances the same way a family handles theirs?” argument? It’s as absurd as believing that austerity is our best and only option. Families who engage in deficit spending end up with creditors on their tail. A government has the ability to borrow ridiculously large sums of money at low interest rates, something simply unavailable to Bubba and Esther Sixpack and their growing brood. The sooner we stop giving this argument credibility, the sooner we can get back to being honest about how to fix our economy.)

Here’s what I do know to be true. Everyone- and I do mean EVERYONE- is ignoring the 800-lb. gorilla in the room- the defense budget. We spend 26.5 cents out of every tax dollar on defense, and yet nobody’s even talking about ways that we might shift even a small amount of money to useful, more productive purposes. How much is wasted on a military-industrial complex that’s bloated beyond all rational understanding? When a quarter of our tax dollars go to defense, why is no one looking at or even considering how we make the Department of Defense more responsible and more efficient- in short, a better steward of the billions directed their way?

If we’re to set things straight and get our economy back on track, austerity isn’t going to do it. What will is the recognition that we can’t save our way out of our collective dilemma. Public investment isn’t socialism; it’s part of what government does to ensure that things work and will continue to work.

Or we can continue to insist on solutions that won’t work, which, given the current tone and tenor of our public dialogue, is exactly what will continue to happen…because ideology- to our discredit- trumps reality.

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This page contains a single entry by Jack Cluth published on November 1, 2013 6:16 AM.

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