The Republican minority in the United States Senate is determined to impose severe fiscal austerity on the country, at a time when doing so is certain to create more drastic hardship and push the economy back into another deep recession.
On the irrational grounds that it’s time to pull the plug on efforts to stimulate economic growth, citing mysteriously invisible “market fears” of a non-existent “debt crisis” in the U.S., Senate Republicans have succeeded in blocking extended unemployment insurance, COBRA health insurance subsidies for unemployed workers, and fiscal aid to cash-starved states. In doing so, they have begun implementing by default the kinds of austerity measures the IMF has notoriously imposed on less-developed nations, and which countries like Germany and England are now pursuing at the expense of their own prospects for economic growth.
Never mind that it was Republican pseudo-economics and incompetence that led to the housing bust, the financial crisis and the Great Recession. Never mind that Republicans were, as a result, roundly and soundly defeated in the two most recent federal elections. With 41 votes in the Senate, Republicans can block any measure using the filibuster threat. And that’s what they’ve done with extended unemployment insurance.
As a result, an estimated 1 million long-term jobless workers have stopped receiving any unemployment compensation since Congress failed to extend the programs before Memorial Day. And they are joined by another 40,000 long-term unemployed every day.
Also at risk are continued funding for employment assistance for needy low-income families, aid to states to help with Medicaid payments, support for food stamp benefits and aid for local schools, police and firefighters. Despite the urgent need, it appears that the administration’s proposed $50 billion in fiscal aid to states and municipalities is stalled.
Employment numbers recently have been bolstered by temporary federal Census hiring. But, starting this month, many of the more than half-million Census workers will begin seeing those jobs end. With unemployment already persistently near 10 percent, hundreds of thousands of federal, state and local workers including many public school teachers will likely swell the ranks of the unemployed thanks to the Republican austerity hounds.
Nearly a month ago I wrote that we had reached ‘A Dangerous Crossroads’:
Ominous signs emerged last week that a threat to undermine an economic recovery is afoot, and that threat has particularly severe consequences for America’s 15 million unemployed.
Before voting on an already scaled-down jobs and jobless aid bill, House Democrats succumbed to pressure from conservative Blue Dogs and nervous moderates and weakened the bill further, eliminating some of its core provisions.
This is the worst possible time to start dismantling the fiscal pylons that have thus far stabilized the economy and allowed for the beginnings of a recovery. As Christina Romer, chair of the President’s Council of Economic Advisors, has reminded us — think 1937. In response to a policy pivot that emphasized short-term deficit reduction and lower spending, the still-weak economy headed back into a second severe recession.
That the short-term deficit argument was, temporarily, accepted then is understandable. After 1932, under the New Deal, unemployment had been steadily declining for four straight years and GDP growth had been averaging 9 percent annually. That is far from the case today. Recent GDP growth of about 3 percent is less than half that needed for sustained recovery. And unemployment has not shown any sustained, measurable decline. To the contrary, we’ve had 15 million unemployed each month for nearly a full year.
In ‘Pseudo-Economics Become Sado-Economics’ we warned that, without actually deciding to do so, Congress had begun to:
…reduce or eliminate portions of the unemployment safety net. Tens of millions of Americans are already sliding from the middle-class into poverty. The phony deficit hawks are doing the Republicans’ bidding. If the economy slides backward, they will blame the Democrats and attack even more jobless aid programs. I fear that, feeling their mean-spirited oats, they will soon target the added Tiers of emergency federal unemployment benefits.
In his column today in The New York Times, titled “The Third Depression”, Nobel Prize-winning economist Paul Krugman writes:
We are now, I fear, in the early stages of a third depression. It will probably look more like the Long Depression [after the Panic of 1873 - ed.] than the much more severe Great Depression. But the cost — to the world economy and, above all, to the millions of lives blighted by the absence of jobs — will nonetheless be immense.
And this third depression will be primarily a failure of policy. Around the world — most recently at last weekend’s deeply discouraging G-20 meeting — governments are obsessing about inflation when the real threat is deflation, preaching the need for belt-tightening when the real problem is inadequate spending.
Krugman goes on to note how it appeared in 2008 and 2009 that we had learned the lessons of the last depression, lowered interest rates, supported the credit markets, and provided needed stimulus to at least partially offset severely depressed demand. The economic downturn would obviously depress revenues, but larger short-term deficits were rightly seen as necessary to stabilize the economy and keep it from getting much worse.
But future historians will tell us that this wasn’t the end of the third depression, just as the business upturn that began in 1933 wasn’t the end of the Great Depression. After all, unemployment — especially long-term unemployment — remains at levels that would have been considered catastrophic not long ago, and shows no sign of coming down rapidly. And both the United States and Europe are well on their way toward Japan-style deflationary traps.
In the face of this grim picture, you might have expected policy makers to realize that they haven’t yet done enough to promote recovery. But no: over the last few months there has been a stunning resurgence of hard-money and balanced-budget orthodoxy.
The Obama administration understands the dangers of premature fiscal austerity — but because Republicans and conservative Democrats in Congress won’t authorize additional aid to state governments, that austerity is coming anyway, in the form of budget cuts at the state and local levels.
Why the wrong turn in policy? The hard-liners often invoke the troubles facing Greece and other nations around the edges of Europe to justify their actions.
But there is no evidence that short-run fiscal austerity in the face of a depressed economy reassures investors. On the contrary: Greece has agreed to harsh austerity, only to find its risk spreads growing ever wider; Ireland has imposed savage cuts in public spending, only to be treated by the markets as a worse risk than Spain, which has been far more reluctant to take the hard-liners’ medicine.
So I don’t think this is really about Greece, or indeed about any realistic appreciation of the tradeoffs between deficits and jobs. It is, instead, the victory of an orthodoxy that has little to do with rational analysis, whose main tenet is that imposing suffering on other people is how you show leadership in tough times.
And who will pay the price for this triumph of orthodoxy? The answer is, tens of millions of unemployed workers, many of whom will go jobless for years, and some of whom will never work again.
A chilling thought, indeed; particularly for older workers with families — like me — who are now unemployed.
Something bothered me, though, in that next-to-last paragraph. It was the phrase “how you show leadership” that struck me as insufficiently incisive. Because, as I watched the Senate Republicans block the majority from voting to extend unemployment insurance last week, I saw them chortling and laughing and slapping one another on the back. And I thought, there’s something more going on here.
So, if I may, this once, be allowed to re-write Krugman:
“It is, instead, the victory of an orthodoxy that has little to do with rational analysis, whose main tenet is that imposing suffering on other people is how you show your superiority, and impose your authority even as the minority.”