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COVID-19 and the Return of a Dangerous Idea, Austerity

The past decade delivered powerful lessons of what not to do in an economic crisis. Many countries pursued, or had imposed on them, austerity policies. That is, cutting government spending when the economy tanks in order to balance the books. The idea is that with less spending now, taxes will be lower later on, which will make people feel more confident now, thereby shortening the recession. It’s a nice idea. But it actually makes things worse.

Take Greece, the austerity poster child of the Eurocrisis. With a GDP of over $350 billion in 2008, its projected GDP 12 years later was a paltry $225 billion, with unemployment sitting at 16.1%. This should not a surprise when one considers that countries pursuing austerity end up with less money to pay off their debts rather than more because their economies shrink under the budget cuts, but their debts stay the same. One would think that these Darwin Awards for economic policy would never again be tried. Exasperatingly, however, it looks like politicians never tire of repeating them.  For the past decade Wisconsin has been the economic policy incubator many Republican controlled states sought to emulate, along with developing the democracy restricting tactics to achieve it.

Once proud progressive Wisconsin, the incubator of many New Deal programs such as Social Security, in their April 7th election delivered scenes that could be featured in a novelized version of the Book of Revelations. As the election neared, it became clear that a public health disaster was in the making. March 26th saw metro Milwaukee, the state’s biggest population center, declared the 6th highest site for Covid-19 infections in the United States. The state’s Democratic Governor engaged the State Legislature to devise a plan to meet the looming public health challenge. But, the architects of the most gerrymandered legislatures in the US, Robin Vos and Scott Fitzgerald (respectively heads of the Wisconsin Assembly and Senate), rejected cooperation. Up for grabs was an important State Supreme Court justice seat.

A key tool in the Wisconsin GOP’s election kit is voter suppression. Wisconsin’s Democratic Governor gave an emergency order postponing elections until June. The GOP controlled Wisconsin Supreme Court, ironically under orders not to convene at the Court under the health emergency, nonetheless voted remotely to overturn the Governor’s order to protect public health by postponing the election. Wisconsinites, if they had not already mailed in a ballot, had to vote in person if they wished to exercise the voting franchise.

In the current public health emergency, on April 7th Democratic stronghold Milwaukee could only man 5 of the normal 180 election sites. Voters, including potentially ill pensioners, lined up for blocks and for hours in a day punctuated by hailstorms. Meanwhile, Vos served as election commissioner in a small town, yet to be hard hit by the virus, fully attired in personal protective equipment. Outfitted more like Hannibal Lecter than an election commissioner, Vos declared to the press that it was “incredibly safe to go out” and vote. Scare tactics have never been so well named.

Paul Krugman in his New York Times column on April 10th rightly summarized the political situation in Wisconsin as “becoming Hungary on Lake Michigan,” in reference to the democracy euthanizing policies of Prime Minister Viktor Orban. But, what has been absent from reports on this election, is what the Wisconsin Republican Party wants to do with this increased power? Emboldened by their voter suppression victory, the day after, the architects of the most gerrymandered legislature in the United States, Vos and Fitzgerald, pressed for greater legislative powers to cut education spending during recessions. They later rescinded this, presumably on grounds of political costs, but the initial move signals their future intentions.

The past decade already saw massive cuts to both K-12 and University of Wisconsin education. The former created teacher shortages, as many simply left the profession. The latter saw a damaging exodus of many of the state’s top intellects who departed for better conditions elsewhere. The eight-year austerity program of former GOP Governor Scott Walker, of which this was one small part, profoundly damaged Wisconsin. Not only were investments in education gutted, but as a result of this austerity program incomes, job growth, and GDP all fell below national averages for growth. And, unemployment only remained low because working age people left the state for higher pay elsewhere.

There is good reason to worry that like Covid-19, austerity might not be contained to Wisconsin. Vos serves as the President of the National Conference of State Legislatures. His policy experiments often spread to other state assemblies. Imposing austerity now, in the midst of an economy crushing pandemic, is nothing short of suicidal. Vos and Fitzgerald’s earlier proposal to further cut already collapsing education systems runs completely counter to established good economic policy seen almost everywhere else in the world now, where supporting budgets, not cutting them, is the order of the day. It augers a disastrous experiment not only for Wisconsin, but for other Republican ruled states if copied.

Moreover, if austerity is counterproductive from an economic standpoint, it’s doubly so politically. First, President Trump is a survivor. His campaign has surely taken note of the GOP’s 10 point loss in the key Supreme Court race in after the votes were finally counted on April 13th. Wisconsin is key to Trump’s fall 2020 re-election bid. If pushed for additional stimulus packages, they will come. He knows he can’t afford going into an election with a flagging economy in Wisconsin. Second, even if Wisconsin and other states have to borrow to meet short-term deficits, borrowing costs are presently so low that any debts accrued can easily be managed by even small levels of future economic growth.

Both democracy and sound economic policy in the world are under threat. And, the place to see how this is happening is Wisconsin. Beware, and definitely don’t try this at home. But, also know, that whether you wish it or not, the powers behind austerity are willing to impose their will by any means against the public interest. And, a United States economy that goes bust on austerity risks taking others around the world down with it.

Mark Blyth is the William R. Rhodes ’57 Professor of International Economics at The Watson Institute for International and Public Affairs, Brown University. Jeffrey Sommers is Professor of Political Economy and Public Policy and Senior Fellow, Institute of World Affairs University of Wisconsin-Milwaukee.

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