Why Should We Listen to Deficit Hawks?
by Dean Baker | June 1, 2010 - 10:19am
Calls to cut social security come from economists who want to line Wall Street pockets with money from ordinary workers
When politicians demand that the public do something because of the dictates of financial markets, it is best to hold on to your wallet. Back in September of 2008, both President Bush and the Democratic leadership in Congress insisted that if we did not immediately hand over $700bn to the banks, the whole financial system would grind to a halt.
The threat worked – the banks got their $700bn from Congress and much more from the Fed – with few questions asked. As a result, Goldman Sachs, Citigroup, and the rest are now as profitable as ever and once again paying out record bonuses to "top performers".
If the market had been allowed to run its course Goldman, Citigroup, Morgan Stanley, and many other major banks would have been bankrupt, leaving their shareholders and creditors out of luck and their top executives walking the unemployment lines. There are reasons that this outcome would have been undesirable for the economy as a whole, but there is a big difference between the Tarp blank check and doing nothing. If the politicians and their accomplices in the economics profession had not overwhelmed the public with fear, we could have ensured that the bankers suffered from the crisis that they had themselves created.
With the banks back on their feet, the Wall Street crew and their accomplices in the economics profession are again feeling their oats. They are insisting that we have to put our hopes for economic recovery on the back burner. Instead, we have to focus on deficit reduction. The reason is that we have to soothe financial markets. more