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Mark Twain once noted, that while “history does not repeat itself, it does rhyme.” Congressman Ryan’s budgetary rhyme is to suggest every year, without fail, that only by cutting government spending will the economy grow. It’s an annual argument for austerity that needs to be called out for the snake oil that it is.
Every year Ryan first bemoans the size of the debt, omitting to mention that relative to the size of the US economy, the US is in much better fiscal shape than most of Europe and almost all of the rest of the developed world. US net debt to GDP is down to 73 percent while Europe’s debt is getting bigger not smaller, why? Because when you cut spending, even government spending, the size of the economy shrinks (teachers eat and drive cars too) and the same amount of debt gets bigger not smaller. Paradoxically then, the more you cut the bigger your debts become. Ask Greece. They have cut 30 percent of GDP and increased their debts by 50 percent at the same time.
In fact, the world has been running a large natural experiment on austerity for the past five years and the results are in. When the rich countries of the world bailed out their banks, debts shot up as we turned private debt into public debt. That’s where “all the debt” came from. Now, to pay it back, the GOP aren’t going to ask Wall Street for the cash. They want Main Street to pay for it through cuts to government spending that directly benefit ordinary Americans. To sell such snake oil one has to forget that Europe has been trying to do exactly this “cutting your way to growth” since 2008, while the US refused to make the cuts apart from the idiotic sequester – God Bless Gridlock. The result? European joblessness is twice the US level while Eurozone growth is one fifth of that of the US. Yes, one fifth.
And what Ryan wants us to do is to not only to follow the European example, but to go much further, with even more severe cuts to social spending and research, of which the latter generates tomorrow’s innovations and economic growth. Really, it’s true. To take two examples, 40 percent of the drugs that US Pharma makes, and that all US seniors love, comes from NIH (government) funded research. And that iPhone in your pocket may have been assembled by Steve Jobs, but he didn’t invent the GPS and TCP-IP technologies at the heart of it: the wasteful ‘overreaching’ government did that.
In short, Ryan’s budget combines the harshest Greek-style social cuts and combines those cuts with nearly a trillion dollars of new military spending over the next decade – when we are already the biggest military spender in the world with the next nine powers added together coming nowhere near us. If there was ever a waste of money to be had, surely this is it? Ryan also asserts his budget cuts are in fact small and don’t represent austerity at all. This slight of hand trick results from arguing the budget is only modestly cut, but this fails to mention that his cuts to health and research are massive. Thus, overall spending cuts are only smaller because of his massive proposed increase to military spending. Moreover, Ryan’s ‘orange-alert’ warnings about Medicare drowning in debt have to be re-thought in light of rapidly declining growth of healthcare costs. Indeed, the past five years have shown the slowest increase in health costs since records were kept.
One would think we learned our lesson regarding tax cuts for the wealthy, simplistic supply-side nostrums that fueled Wall Street excesses, and ultimately caused the biggest crash of our economy since the Great Depression. And yet every year we hear this same argument regardless of the overwhelming evidence to the contrary. Facts, it seems, never get in the way of a ‘good’ ideology. Especially one that enables you to bail out your friends and pass the costs on to your enemies.
Mark Blyth is Professor of International Political Economy and Director of the International Relations and Development Studies Programs at Brown University’s Watson Institute for International Affairs. He is the author of the best selling Austerity: the History of a Dangerous Idea (Oxford University Press, 2013), soon in a new paperback edition.
Jeffrey Sommers is Associate Professor of Political Economy & Public and Senior Fellow, Institute of World Affairs of the University of Wisconsin-Milwaukee and Visiting Faculty at the Stockholm School of Economics in Riga. His new book new book (with Charles Woolfson), The Contradictions of Austerity: The Socio-economic Costs of the Neoliberal Baltic Model is available from Routledge.
* A version of this article originally appeared in the Milwaukee Journal/Sentinel.