300 Economists Warn That Deficit Hysteria Is a Big Con That Threatens to Drive America into a Full-Blown Depression
On Thursday, 300 economists and analysts issued a statement warning that the “deficit hawks” who appear to be gaining the upper hand in our economic debates are threatening to turn an already deeply painful recession into a full-blown depression.
In a conference call with reporters organized by the Campaign for America’s Future, the experts warned that the American economy now stands at a crucial juncture. They acknowledged that public debt is mounting, and presented a choice of two different paths to right the ship: imposing fiscal “austerity” today, in the midst of the most serious downturn since the Great Depression, or investing in the American economy -- with public spending over the short term -- in order to grow our way out of the red ink.
Former Labor Secretary Robert Reich said that the economists’ statement “is both a warning about the danger of deflation and continued stagnation, and it’s also a plan for growth -- the right way to approach and address long-term deficits.” Reich warned that if the policies being pursued by Washington’s deficit hawks continue, we risk not only a “double-dip” recession, but possibly a “lost decade, similar to that experienced by Japan during the 1990s.
The wonks advocate increased aid to cash-strapped states and municipalities, direct support for public service jobs and comprehensive investments in America’s aging infrastructure.
“This is about a high road to recovery versus a low road to fiscal balance,” said Robert Kuttner, a senior fellow with Demos. “All of us want reduced deficits at some point. The question is: what is the proper sequencing, and what is the proper analysis of cause and effect?” Kuttner said the economists’ view was “simple.” “You get the recovery first, and that requires increased public investment, and then the road to fiscal balance is much less arduous because people are working, businesses are investing and tax revenues go up because you’re in recovery.”
“We live with falling bridges, collapsing sewers, decrepit schools, aged gas lines and much more,” said Robert Borosage, co-Director of the Campaign for America’s Future. “Everyone agrees we have to rebuild an aging and outmoded infrastructure, and there’s no better opportunity to do so than now -- interest rates are low, construction workers are idled, and anyone with a whit of business sense would grab this moment to launch a major project to rebuild America.” Borosage contrasted that view with a proposal put forward by House Minority Leader John Boehner, R-Ohio, to cut $100 billion in discretionary spending next year, at a time when consumers are too maxxed out to create the demand needed to get the economy back on track. “There can be no clearer statement of the divorce between ideology and basic good business sense,” said Borosage.
During Thursday’s conference call, all of the speakers agreed that the public discourse around these issues has been skewed by conservative ideologues. “There’s been a huge investment in influencing public opinion on the part of fiscal convervatives who are also long-standing philosophical opponents of social insurance,” said Kuttner.
Dean Baker, co-Director of the Center for Economic and Policy Research, called it "striking" that "we’ve had a narrative around this downturn that is that is 180 degrees at odds with reality." The common storyline, he said, is that "we have an out-of-control government and out-of-control government spending.” But, according to Baker, “it’s very easy to show that this has almost no plausible relationship with the deficits we’re facing.” He explained that the cause of the deficits are quite simple: Bush’s unfunded tax cuts, bloated defense budgets and an economic downturn that has the American economy operating at a level 10 percent beneath its potential capacity. He added that over the long haul, the real challenge facing American families and businesses will continue to be health-care costs, which are around 2.5 times higher in the U.S. than in other wealthy nations.
The experts stressed the need to restore the agenda that prevailed during the middle of the last century, when the American middle class was created. During that time, prosperity was broadly shared, and a large swath of the population could afford to buy the goods and services they created, spurring greater investment and dynamic growth.
Over the short-term, the economists argued, that requires taking the “high road” to fiscal balance. You can read their statement in its entirety at dontkilljobs.org.