The Battle Over Budget Cuts

There is a new economists’ sign-on letter being circulated that warns bad things will happen if there are big cuts to the public investment portion of the federal budget, as Republicans in Congress are now advocating. The argument in the letter is correct, but it is nonetheless painful to see this sort of thing being circulated right now.

The politicians in Washington may have missed it, but we are still in the middle of the worst economic downturn since the Great Depression. The unemployment rate is still 9.0 percent and virtually no forecaster, including those in the administration, expects it to return to normal levels any time soon. In addition to the unemployed we have more than 8 million people under-employed and millions more who have given up looking for work altogether.

In such times we might expect that there would be discussion of a big new stimulus program. After all, we do know how to generate growth and create jobs. As a large and growing body of research shows, we just have to spend money. This means that tens of millions of people are suffering as a result of unemployment or under-employment simply as a result of bad economic policy.

The politicians who could in principle push through more stimulus have been intimidated into silence by the business lobbies and the media who have decided to make concerns about the deficit the top and only economic priority. In this context, it would have been reasonable to expect that a letter drafted by prominent liberal economists (the lead signers include Alan Blinder and Laura Tyson, two of the top economists from the Clinton Administration) would center on the need to boost demand to create jobs. Economists who don’t have to run for office can say such things even when politicians can’t.

But there is no mention of stimulus, just a plea not to cut public investment. This plea could even be taken as an implicit endorsement of cuts to other areas of spending such as Medicare, Medicaid and Social Security.

In fairness to the authors of the letter, the state of politics in Washington is quite bleak right now from a progressive standpoint. The Republicans won a huge victory last fall with the conservative wing of the party on the ascendancy. They seem virtually certain to retake the Senate in 2012. Arguably the best that can be hoped for is to shelter a few selected areas from spending cuts.

While that may be true at the moment, it is hard to see this path as anything other than a slower road to disaster. After all, no one believes that the economy is going to turn around based on the sort of budget that is likely to come from a compromise with the Republicans. And President Obama is virtually certain to be held accountable for the state of the economy in 2012. Furthermore, even if he does manage to get re-elected, he will still be dealing with the same sort of congressional opposition he faces today. And of course, no one in their right mind can think that the current economic situation is acceptable.

At some point, we have to talk about changing the terms of the debate. This is where our two honcho Democratic economists need to be taken to the woodshed. They could be trying to argue the case that the economy needs additional stimulus to get back to normal rates of unemployment. The Republicans may block this path, but at least then the public might understand that people are unemployed or underemployed because of a political decision, not an act of God.

If they think increased stimulus is an impossible lift at this point, why not argue the case for work sharing? We can encourage employers to shorten hours instead of laying people off. If we can reduce the rate of layoffs by just 10 percent, this would translate into almost 2.5 million additional jobs over the course of a year.

In principle, this work sharing doesn’t even have to cost any money. It’s just substituting payments for short-time work for unemployment benefits. Work sharing is the reason that Germany’s unemployment rate has fallen in this downturn, even though it has seen less GDP growth than the United States.

Pushing for either more stimulus or work sharing would at least set out a positive agenda, as opposed to splitting the difference on a real bad path. Of course, if our leading Democratic economists had been a little more far-sighted we never would have been in this mess in the first place.

They would have been talking about the housing bubble back in 2002-2004 when it could have been reined in without wrecking the economy. Better yet, they could have been talking about the stock bubble back in the Clinton years before it set the U.S. economy on a path of bubble-driven growth.

It would be good if Republican plans to shut down the government and/or gut large areas of public investment can be thwarted. But serious progressives have to move beyond a situation where we are choosing between bad and worse choices. The folks setting the economic policy agenda for the Democrats are not going to get us there.

DEAN BAKER is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of Plunder and Blunder: The Rise and Fall of the Bubble Economy and False Profits: Recoverying From the Bubble Economy.

This column was originally published by The Guardian.


More articles by:

Dean Baker is a macroeconomist and co-director of the Center for Economic and Policy Research in Washington, DC. He previously worked as a senior economist at the Economic Policy Institute and an assistant professor at Bucknell University.

Weekend Edition
March 16, 2018
Friday - Sunday
Michael Uhl
The Tip of the Iceberg: My Lai Fifty Years On
Bruce E. Levine
School Shootings: Who to Listen to Instead of Mainstream Shrinks
Mel Goodman
Caveat Emptor: MSNBC and CNN Use CIA Apologists for False Commentary
Paul Street
The Obama Presidency Gets Some Early High Historiography
Kathy Deacon
Me, My Parents and Red Scares Long Gone
Jeffrey St. Clair
Roaming Charges: Rexless Abandon
Andrew Levine
Good Enemies Are Hard To Find: Therefore Worry
Jim Kavanagh
What to Expect From a Trump / Kim Summit
Ron Jacobs
Trump and His Tariffs
Joshua Frank
Drenched in Crude: It’s an Oil Free For All, But That’s Not a New Thing
Gary Leupp
What If There Was No Collusion?
Matthew Stevenson
Why Vietnam Still Matters: Bernard Fall Dies on the Street Without Joy
Robert Fantina
Bad to Worse: Tillerson, Pompeo and Haspel
Brian Cloughley
Be Prepared, Iran, Because They Want to Destroy You
Richard Moser
What is Organizing?
Scott McLarty
Working Americans Need Independent Politics
Rohullah Naderi
American Gun Violence From an Afghan Perspective
Sharmini Peries - Michael Hudson
Why Trump’s Tariff Travesty Will Not Re-Industrialize the US
Ted Rall
Democrats Should Run on Impeachment
Robert Fisk
Will We Ever See Al Jazeera’s Investigation Into the Israel Lobby?
Kristine Mattis
Superunknown: Scientific Integrity Within the Academic and Media Industrial Complexes
John W. Whitehead
Say No to “Hardening” the Schools with Zero Tolerance Policies and Gun-Toting Cops
Edward Hunt
UN: US Attack On Syrian Civilians Violated International Law
Barbara Nimri Aziz
Iraq Outside History
Wilfred Burchett
Vietnam Will Win: The Long Hard Road
Victor Grossman
Germany: New Faces, Old Policies
Medea Benjamin - Nicolas J. S. Davies
The Iraq Death Toll 15 Years After the US Invasion
Binoy Kampmark
Amazon’s Initiative: Digital Assistants, Home Surveillance and Data
Chuck Collins
Business Leaders Agree: Inequality Hurts The Bottom Line
Jill Richardson
What We Talk About When We Talk About “Free Trade”
Eric Lerner – Jay Arena
A Spark to a Wider Fire: Movement Against Immigrant Detention in New Jersey
Negin Owliaei
Teachers Deserve a Raise: Here’s How to Fund It
Kollibri terre Sonnenblume
What to Do at the End of the World? Interview with Climate Crisis Activist, Kevin Hester
Kevin Proescholdt
Secretary of Interior Ryan Zinke Attacks America’s Wilderness
Franklin Lamb
Syrian War Crimes Tribunals Around the Corner
Beth Porter
Clean Energy is Calling. Will Your Phone Company Answer?
George Ochenski
Zinke on the Hot Seat Again and Again
Lance Olsen
Somebody’s Going to Extremes
Robert Koehler
Breaking the Ice
Pepe Escobar
The Myth of a Neo-Imperial China
Graham Peebles
Time for Political Change and Unity in Ethiopia
Terry Simons
10 American Myths “Refutiated”*
Thomas Knapp
Some Questions from the Edge of Immortality
Louis Proyect
The 2018 Socially Relevant Film Festival
David Yearsley
Keaton’s “The General” and the Pernicious Myths of the Heroic South