Stiglitz on the Perils of 2012

Joseph E. Stiglitz of Columbia University, winner of a Nobel Prize in Economics, paints a fairly dismal portrait of this year if we continue chasing snopes through the forest — those ideas that our short term debt and deficit crisis requires unprecedented austerity and draconian budget cuts — and fail to enact economic policy that stimulates growth.

This year is set to be even worse. It is possible, of course, that the United States will solve its political problems and finally adopt the stimulus measures that it needs to bring down unemployment to 6% or 7% (the pre-crisis level of 4% or 5% is too much to hope for). But this is as unlikely as it is that Europe will figure out that austerity alone will not solve its problems.   On the contrary, austerity will only exacerbate the economic slowdown. Without growth, the debt crisis – and the euro crisis – will only worsen. And the long crisis that began with the collapse of the housing bubble in 2007 and the subsequent recession will continue.

If the right policies and points of view are taken, it is not all doom :

Meanwhile, long-term problems – including climate change and other environmental threats, and increasing inequality in most countries around the world – have not gone away. Some have grown more severe. For example, high unemployment has depressed wages and increased poverty.

The good news is that addressing these long-term problems would actually help to solve the short-term problems. Increased investment to retrofit the economy for global warming would help to stimulate economic activity, growth, and job creation. More progressive taxation, in effect redistributing income from the top to the middle and bottom, would simultaneously reduce inequality and increase employment by boosting total demand. Higher taxes at the top could generate revenues to finance needed public investment, and to provide some social protection for those at the bottom, including the unemployed.

The Obama administration rode in with much hope, but stacking his cabinet and economic team with those that created the conditions that led to disaster, and marginalizing those whose proscriptions are proving out to be what is needed to speed recovery and reduce unemployment, a repeat of the same old program does not bode well for the near future, nor the far.

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Governor LePage Is Not Helping

The drag that state and local budget problems are contributing to the economic recovery looks dismal, as in depression economics dismal. The contribution to real GDP from states and local economies is in negative territory with the pain of cutbacks being shouldered by real people in the form of cuts to education and lay-offs of police, fire fighters, teachers, draconian cuts to the elderly, the disabled, the poor. This policy of focusing on cuts rather than raising revenues to balance state and local budgets is being done under the baseless notion that austerity and tax cuts to business will grow the economy, but the numbers, over and over and over, tell a story diametrically opposite to that “business-friendly” narrative.

The irony here is that there is nothing “business friendly” about it. Small businesses are suffering through the lack of consumer demand these policies contribute to. Laid-off workers don’t buy goods and services. Small businesses feel the brunt of this stifling of demand, laying off their workers, foregoing new investment to grow their business, purchasing less inventory. Those that benefit from the tax cuts already enacted add little to growth as the wealthy to whom these cuts go either save their windfall or invest for their own benefit. Again, the numbers show state and local contributions to real GDP are negative – putting the brakes on the economic recovery. These mythological “job-creators” are not creating jobs, and to consider this the only way to grow Maine’s economy is wrongheaded.

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                                                          Source: Bureau of Economic Analysis

As a vocal proponent of this austerity in the face of budget shortfalls Governor LePage is more the problem than the answer. Selling our future short for the temporary gain to the wealthiest in Maine is not in the interest of the long term prosperity of our State. Repeating the meme that it is so does nothing to make it so. But the Governor seems completely innoculated against that logic. As noted previously, even the Maine Revenue Services acknowledges that fairer taxation that brings the wealthiest Mainers into line with other taxpayers would cover the DHHS shortfall.

And the infection of this idea is not just a disease confined to the Blaine House. Senator Snowe has been a vocal proponent of a federal balanced budget amendment, the very thing that has hog-tied state governments creating this scenario of cutting benefits that serve the interest of all people, the 100%, although primarily the middle and lower income families while cutting the taxes on the wealthiest, not because it is good policy but because it is what they demand and have the resources to get. This Congress is, after all, the best that money can buy…

Paul Krugman puts this problem of destructive austerity from state and local budget cuts while failing to raise sufficient revenues more starkly:

It’s hard to overstate just how wrong all this is. We have a situation in which resources are sitting idle looking for uses — massive unemployment of workers, especially construction workers, capital so bereft of good investment opportunities that it’s available to the federal government at negative real interest rates. Never mind multipliers and all that (although they exist too); this is a time when government investment should be pushed very hard. Instead, it’s being slashed.

What an utter disaster.

An Idea Whose Time Is Not Now, and Likely Should Never Be

Unlike other ideas which do come in their appointed time and then spread like wildfire – the Occupy Movement comes to mind – this idea proposed by House Republicans to require a high school diploma or GED, or enrollment in courses to obtain one or the other, or alternatively, adult education courses, to be eligible to receive unemployment benefits seems another example of the short-sightedness endemic in House Republicans these days. Yet another attack on middle class workers that have long been in the work force, played by the rules, and find themselves out of work through no fault of their own. Hard to see what justifies this type of tinkering-around-the-edges policy proposal, but with the current majority in the House this certainly isn’t the first piece of legislation, nor will likely be the last, that leaves one scratching their head (if not cursing profusely). Read more here from Robert Greenstein at the Center on Budget and Policy Priorities.

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