Economic Find: The Great Austerity War
With rising deficits at the federal, state, and local levels, right-wing coalitions have demanded that government deficits be eliminated by both tax cuts for the rich and businesses as well as severe cuts in spending that either funds public investment or supports the poor and middle class.
Such demands are no less than a direct attempt to destroy what remains of the New Deal, a series of programs initiated by FDR and the Democratic Party that included strict regulation of financial markets, creation of Social Security, support for burgeoning industrial unions, large public employment programs, the beginnings of unemployment insurance, and deficit-financed stimulus spending.
According to CPE Member James Crotty, our current deficit crisis is the result of a shift from the New-Deal program to the neoliberal, free-market model that has generated slow growth, rising inequality, and the rising deficits that have prompted demands for austerity.
This crisis can only be resolved by cutting war spending, adopting a Canadian or European style health care system, and raising taxes on upper-income households and large corporations. In fact, see the chart above for the Center on Budget and Policy Priorities’ illustration that our debt-to-GDP ratio would avoid more increases if Congress let the Bush-era tax cuts expire in 2010.
Incessant calls for government spending cuts should be seen for what they are-an attack by the rich and powerful against the basic interest of the American people. Fortunately, as we are seeing around the country, there is a movement emerging to fight back.
Created by Member Economist Sue Holmberg.
Source: Crotty, James. 2011, The Great Austerity War: What Caused the US Debt Crisis and Who Should Pay to Fix It? PERI Working Paper: 260.
Data Source: Ruffing, Kathy A. and James R. Horney. 2011. “Economic Downturn and Bush Policies Continue to Drive Large Projected Deficits.” Center on Budget and Policy Priorities. http://www.cbpp.org/cms/?fa=view&id=3490.