Austerity Is the Wrong Prescription for Our Economic Malaise

Joseph Stiglitz is a Nobel Prize-winning economist who authored Freefall: America, Free Markets, and the Sinking of the World Economy, among many other books. Stiglitz has a really good piece up at Slate about why extreme, unfettered free market ideology is the cause of, not the cure for, the economic catastrophe the United States — and the world — is facing. These two paragraphs are the heart of his argument:

A decade ago, in the midst of an economic boom, the United States faced a surplus so large that it threatened to eliminate the national debt. Unaffordable tax cuts and wars, a major recession, and soaring health care costs—fueled in part by the commitment of George W. Bush’s administration to giving drug companies free rein in setting prices, even with government money at stake—quickly transformed a huge surplus into record peacetime deficits.

The remedies to the U.S. deficit follow immediately from this diagnosis: Put America back to work by stimulating the economy; end the mindless wars; rein in military and drug costs; and raise taxes, at least on the very rich. But the right will have none of this, and instead is pushing for even more tax cuts for corporations and the wealthy, together with expenditure cuts in investments and social protection that put the future of the U.S. economy in peril and that shred what remains of the social contract. Meanwhile, the U.S. financial sector has been lobbying hard to free itself of regulations, so that it can return to its previous, disastrously carefree, ways.

This extreme ideology of low taxes and minimal regulation is what the current Republican leadership cares about — not the deficit or the economic crisis. The New York Times made this point in a strongly worded editorial published a few days ago:

The party claims, as an article of faith, if not evidence, that the government’s growing debt is the reason for persistent unemployment and economic stagnation. And yet Republicans are spurning the president’s compromise offers to reduce that debt by trillions over the next decade because he is sensibly insisting that any deal include some increase in tax revenue.

“Where are they?” Mr. Obama asked at his news conference. “I mean, this is what they claim would be the single biggest boost to business certainty and confidence. So what’s the holdup?”

The holdup, of course, is that Republicans are far more committed to the ideological goals of cutting government and taxes than they are committed to cutting the deficit. They rejected several compromise offers by the White House, even though any revenue increases would be far outweighed by spending cuts.

Ezra Klein reiterated this point in his Washington Post column a few days ago (emphasis is Ezra’s):

For Republicans, this isn’t about deficits. It’s about spending and taxes. If this were really about deficits, a win-win would be possible. Easy, even. Republicans want spending cuts, and those cut the deficit. Democrats want revenues, and those cut the deficit. See where I’m going with this? But where Democrats really are arguing over deficits — note their willingness to give more in spending cuts if Republicans will give more in revenues — Republicans want less deficit reduction because it’ll mean Democrats have less leverage with which to demand tax increases.

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