Welcome to the Tea Party's Austerity Recession
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On Monday, the House finally passed a deal to raise the debt limit after weeks of wrangling with a cadre of reactionary, Tea Party-endorsed lawmakers. The measure, which will force some serious cuts to public spending, is expected to easily pass in the Senate. When it does, a painful second "dip" into recession becomes far more likely -- all the conditions are there.
Last week, a depressing report on economic growth caught many observers by surprise. The take-away was that gross domestic product (GDP) – the measure of economic activity within our borders – has been growing at a snail's pace in the first half of this year -- far slower than analysts had predicted. Researchers at the Federal Reserve tell us that since 1947, about half of the times we've had six months of growth as weak as we've seen in 2011, the economy sank into recession in the following year. But many of those slow periods occurred in a different era; today, with Washington obsessed with cutting spending, the chances are certainly greater than 50/50.
We got into this recession when the American people lost not only jobs, but also $14 trillion in wealth during the crash, and pulled back on spending as a result. But we're stuck treading water, two years after the “recovery” officially began, in large part because of the age of austerity – due to cuts forced on us by this misguided and shortsighted view that large deficits are a cause, rather than an effect, of the downturn.
Last year, with the private sector economy continuing to slump, an analysis by Moody's Analytics found that almost one in five dollars in American consumers' wallets came from one government program or another. The public sector has already seen deep cuts, and that trend will only worsen with Washington's relentless focus on deficit reduction. Without those dollars, there will be fewer consumers demanding American companies' goods and services, and the private sector will continue to have little incentive to hire. That's our core economic problem at this time.
The American economy is heading into dark waters, but the coming "austerity recession" won't only be a result of the tireless efforts of a small band of conservative ideologues bent on dismantling the social safety net that emerged during the last century. It will also be a consequence of a crippling intellectual crisis among our elites.
Propaganda Trumps Research
For almost a century, the prevailing economic paradigm has held that when the private sector is in recession, and people aren't spending money, the public sector needs to step in and act as a “buyer of last resort,” running deficits to keep people working until the economy gets going again. While the fine details of “Keynesian” theory have been the subject of debate, in broad strokes, it remains the thinking shared by most economists across the political spectrum. But even as it remains the dominant economic paradigm, a network of deep-pocketed conservative donors has, to a large degree, successfully discredited that idea in the political realm, replacing it with the simplistic and ahistorical narrative that deficits "destroy jobs.”
As Think Progress reported, “Since the end of the Bush presidency, shadowy right-wing groups, many of them formed for this very purpose, have primed the public with a sophisticated public relations campaign to shift the national discourse to a focus on debt reduction.” That's resulted in what Washington Post blogger Greg Sargent describes as a “ deficit feedback loop,” in which “the relentless bipartisan focus on the deficit convinces voters to be worried about it, which in turn leads lawmakers to spend still more time talking about it and less time talking about the economy.” Sargent highlighted a study released in May by the National Journal confirming his thesis. It found, “a dramatically shifting landscape of coverage over the past two years, as the debate over how to fix the federal deficit has risen to prominence and the question of how to handle still-high unemployment has faded from the media's consciousness.”