Jack Lew: Obama’s Austerity Ambassador

There is something seriously off about the mission of the new Treasury secretary, Jack Lew, to Europe. Secretary Lew has been visiting European capitals to persuade leaders there to ease up on the austerity. He has not had a good reception.

Speaking at a joint press conference with the chagrined Lew in Berlin, Wolfgang Schauble, the German finance minister and uber-austerity enforcer, dressed down Lew thusly: “Nobody in Europe sees this contradiction between fiscal consolidation and growth.”

Nobody among the elite, that is. 

Ordinary people in Greece, where output has declined by nearly 25 percent since the austerity tonic began, surely see the contradiction. So do young people in Spain, where the youth unemployment rate has reached 56 percent. 

Even if the cure should eventually work—which it won’t—we will have lost a whole generation. Only in the rarified power precincts of Brussels and Berlin is austerity “working.”

But Jack Lew doesn’t exactly come to this mission with clean hands. He is one of the principal architects of austerity in the Obama administration. 

Lew pushed austerity in his previous jobs as White House chief of staff and as Office of Management and Budget director. And even as Lew was trying to persuade the Europeans to lighten up, his boss, the president, was unveiling an austerity budget at home. No wonder the Europeans didn’t take him seriously.

Here’s part of what Lew told the Germans in Berlin: “The driver for economic growth will be consumer demand, and policies that would help to encourage consumer demand in countries that have the capacity would be helpful.”

Well, yes. Lew was referring to Germany, but he was also describing the United States. But the president’s widely leaked budget proposals, egged on by the likes of Lew, will sandbag consumer demand. It will especially cut Social Security and Medicare, reducing the consumer purchasing power of the elderly.

The backdoor method of cutting Social Security via reducing the annual cost of living adjustment, is both sneaky and misguided. The fact is that the elderly face higher inflation than the rest of us because more of their outlays are in health care, a sector where costs are inflating at well above the general inflation rate. And the supposed efficiency gains in Medicare are often just cost-shifting to the consumer—another hit on the purchasing power of older Americans.

Lew’s European misadventure is an epic case of "do as I say, not as I do." Perhaps when Lew returns from his not terribly successful whirlwind tour, he can advise his president on just how austerity doesn’t work.

Comments

It's certainly true that "austerity doesn’t work." But I'm an open-minded senior; I'd CONSIDER "chained CPI" (ridiculous as it is!) on the day AFTER (a) capital gains, dividends, and "carried interest" are taxed as ordinary income, (b) ALL income is subject to the individual portion of FICA/Medicare tax (and "carried interest" is subject to the employer portion of those taxes, (c) ALL securities purchases and sales (stocks, bonds, future, derivatives, plus whatever Wall Street and LaSalle Street come up with tomorrow) are subject to a modest Financial Transactions Tax, and (d) an expanded Buffet rule sets a minimum tax rate of 30% for individual AGIs of $1 million or more and businesses with earnings of $10 million or more. Isn't THAT reasonable?

It's perfectly reasonable. This might seem to contradict the comment I posted below, but I wish the White House would have and would still make the case for things like this. What's funny is that if the income cap on social security taxes was removed, the crunch coming down on it would be greatly alleviated.

The attacks from the left that Obama is some kind of austerity monster are getting tiresome. Not because austerity hasn't happened in the United State, it has. But the president is not the source of it, and thinkers like Mr. Kuttner are smart enough to know this. For whatever reason, they still prefer to angrily jab at the wrong source. The right source, as we all know, is the neoconservative Republicans in Congress that forced the sequester through a long chain of events that started when they resorted to economic terrorism over the debt ceiling in 2011. I'll entertain the idea that the White House should have been more willing to play hard ball, but it's not at all clear more brinksmanship would have been good in the end for the elderly, poor and middle class- the very people this author and others in his camp claim to be looking out for.

That being said, I think the White House made a huge error in not getting more revenue in the fiscal cliff deal, and miscalculated badly that they'd be able to get more later. Hopefully the next time (if the opportunity comes up again) they have a chance for a big win, they take it for all they can get.

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