The Austerity Delusion
By PAUL KRUGMAN
Published: March 24, 2011
Portugal’s government has just fallen in a dispute over austerity proposals. Irish bond yields have topped 10 percent for the first time. And the British government has just marked its economic forecast down and its deficit forecast up.
What do these events have in common? They’re all evidence that slashing spending in the face of high unemployment is a mistake. Austerity advocates predicted that spending cuts would bring quick dividends in the form of rising confidence, and that there would be few, if any, adverse effects on growth and jobs; but they were wrong.
It’s too bad, then, that these days you’re not considered serious in Washington unless you profess allegiance to the same doctrine that’s failing so dismally in Europe.
It was not always thus. Two years ago, faced with soaring unemployment and large budget deficits — both the consequences of a severe financial crisis — most advanced-country leaders seemingly understood that the problems had to be tackled in sequence, with an immediate focus on creating jobs combined with a long-run strategy of deficit reduction.
Why not slash deficits immediately? Because tax increases and cuts in government spending would depress economies further, worsening unemployment. And cutting spending in a deeply depressed economy is largely self-defeating even in purely fiscal terms: any savings achieved at the front end are partly offset by lower revenue, as the economy shrinks.
So jobs now, deficits later was and is the right strategy. Unfortunately, it’s a strategy that has been abandoned in the face of phantom risks and delusional hopes. On one side, we’re constantly told that if we don’t slash spending immediately we’ll end up just like Greece, unable to borrow except at exorbitant interest rates. On the other, we’re told not to worry about the impact of spending cuts on jobs because fiscal austerity will actually create jobs by raising confidence.
How’s that story working out so far? more
What "Free Trade" Has Cost The World
by Dave Johnson
If you take a job away from someone who is paid a reasonable wage because they enjoy the protections and prosperity of democratic government, move it across a border, and give it to someone living under a thugocracy, forced to work for pennies with no protections whatsoever, it should be just plain obvious that the worker on our side of the border and the worker on the other side of the border are not going to be better off. And when you do this on a massive scale it just stands to reason that most people on both sides of the border are going to be worse off.
But propaganda being what it is we were somehow convinced to try a worldwide experiment in taking good jobs from democracies and turning them into bad jobs in thugocracies. Now, of course, the experiment has run its course and we can see the results.
Worker Against Worker
Setting worker against worker enabled a few people to get really, really really wealthy and powerful and use that wealth to become even more wealthy and powerful. Our country is in decline, burdened by massive trade deficits because the ones with vested interests in cheap labor won't let us won't take on the mercantilists, burdened by budget deficits because those vested interests have bought low taxes and government subsidies, our infrastructure crumbles because multinational business leaders refuse to invest here, with no more need of us as workers, and the resulting hollowed-out middle class can't consume anymore. Other countries also suffer from similar stresses.
Out of this situation a new global elite has emerged, contemptuous of democracy and government and any power but the power of their own money. In country after country, these top few won't share the proceeds with their own, either, while they keep the world from approaching solutions.
In January's post, Establishment Realizing: When You Close The Factory We Can’t Make A Living, I wrote about how "the establishment," or as bloggers call it, "The Village" or "Versailles," are starting to realize that our trade policies just might not be working for us. Of course, they come to this realization only after our trade deficits approach the trillion mark, after we have lost millions of manufacturing jobs, after we have closed tens of thousands of factories, after we have lost the tech manufacturing industry, and after we have abandoned hopes of leading in green manufacturing as well... more
How Can America Create Wealth If Our Industrial Base Is Destroyed? 50,000 Manufacturing Jobs Have Been Lost Every Month Since 2001
Any economy that constantly consumes far more wealth than it produces is eventually going to be in for a very hard fall. Many point to relatively stable GDP numbers as evidence that the U.S. economy is doing okay, but the truth is that we have had to borrow increasingly massive amounts of money to keep GDP numbers up at that level. The U.S. government is going to run an all-time record deficit of about 1.65 trillion dollars this year and average household debt in the United States has now reached a level of 136% of average household income. But borrowing endless amounts of money and consuming massive amounts of wealth with that borrowed money is a road that leads to economic oblivion. The only way to have a healthy economy in the long run is to create wealth. But how can America create wealth if our industrial base is being absolutely destroyed? According to Forbes, the United States has lost an average of 50,000 manufacturing jobsper month since China joined the World Trade Organization in 2001. Hundreds of formerly thriving industries in the United States are being totally wiped out. China uses every trick in the book to win trade battles. They deeply subsidize their domestic industries, they openly steal technology, they blatantly manipulate currency rates and they allow their citizens to be paid slave labor wages. So yes, the products coming from China are cheaper, but in the process tens of thousands of factories in the U.S. are shutting down, millions of jobs are being lost and the ability of America to create wealth is being compromised.
- In 2010, the U.S. trade deficit was just a whisker under $500 billion. Much of that trade deficit was with China.
- During 2010, we spent $365 billion on goods from China while they only spent $92 billion on goods from us.
- Does a 4 to 1 ratio sound like a "fair and balanced" trade relationship to anyone out there?
- Our trade deficit with China in 2010 was the largest trade deficit that one country has ever had with another country in the history of the world.
- In fact, the U.S. trade deficit with China in 2010 was 27 times larger than it was back in 1990.
Needless to say, that is not a good trend.
Our industrial base and our ability to create wealth is being wiped out so rapidly that it has now become a very serious threat to our national security. more
Frances Fox Piven: Where Are The Angry Crowds of the Forgotten Unemployed?
By Susie Madrak
In The Nation, Frances Fox Piven, one of Glenn Beck's favorite targets, raises an important question: How do we mobilize the jobless to political action?
"As 2011 begins, nearly 15 million people are officially unemployed in the United States and another 11.5 million have either settled for part-time work or simply given up the search for a job. To regain the 5 percent unemployment level of December 2007, about 300,000 jobs would have to be created each month for several years. There are no signs that this is likely to happen soon. And joblessness now hits people harder because it follows in the wake of decades of stagnating worker earnings, high consumer indebtedness, eviscerated retirement funds and rollbacks of the social safety net.
"So where are the angry crowds, the demonstrations, sit-ins and unruly mobs? After all, the injustice is apparent. Working people are losing their homes and their pensions while robber-baron CEOs report renewed profits and windfall bonuses. Shouldn't the unemployed be on the march? Why aren't they demanding enhanced safety net protections and big initiatives to generate jobs?
"It is not that there are no policy solutions. Left academics may be pondering the end of the American empire and even the end of neoliberal capitalism, and—who knows—in the long run they may be right. But surely there is time before the darkness settles to try to relieve the misery created by the Great Recession with massive investments in public-service programs, and also to use the authority and resources of government to spur big new initiatives in infrastructure and green energy that might, in fact, ward off the darkness.
"Nothing like this seems to be on the agenda. Instead the next Congress is going to be fixated on an Alice in Wonderland policy of deficit reduction by means of tax and spending cuts. As for the jobless, right-wing commentators and Congressional Republicans are reviving the old shibboleth that unemployment is caused by generous unemployment benefits that indulge poor work habits and irresponsibility. Meanwhile, in a gesture eerily reminiscent of the blatherings of a panicked Herbert Hoover, President Obama invites corporate executives to a meeting at Blair House to urge them to invest some of their growing cash reserves in economic growth and job creation, in the United States, one hopes, instead of China. more