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.
Job creation slowed to just 88,000 in March, signaling a sluggish economy. And President Obama, with unerring timing, picked this moment to put out an authorized leak that he is willing to put Social Security and Medicare on the block as part of a grand budget bargain that will only slow the economy further. The deterioration in economic performance was all too predictable, given the combined lead weights of the March 1 $85 billion of budget cuts in the sequester and the January deal to raise payroll taxes by about $120 billion. (The tax hike on working people was almost double the much-hyped tax increase on the top one percent, which totaled a little over $60 billion.)
The Cyprus banking crisis presents, in microcosm, everything that is perverse about the European leaders’ response to the continuing financial collapse. And bravo to the Cypriot Parliament for rejecting the EU’s insane demand to condition a bank bailout on a large tax on small depositors.
When President Obama got Republicans to raise taxes on the top one percent of income earners as part of the January deal that ended the threat of the fiscal cliff, some Democrats gloated that Republicans had been made to go back on the famous Grover Norquist pledge never to raise taxes. It appeared that Obama, fresh from his November victory and taking advantage of Republicans’ divisions, had won big.
Long before we thought of founding The American Prospect in 1989, I came to know Paul Starr through a prescient article titled “Passive Intervention.” The piece was published in 1979, in a now-defunct journal, Working Papers for a New Society.
President Obama gambled that the threat of the automatic sequester of $85 billion in domestic and defense cuts would force the Republicans to accept major tax increases, and so far he is losing the wager. The Republican leadership, which was badly divided over the New Year’s deal that delayed the fiscal cliff, is now re-united around the proposition that Republicans will accept no further tax increases.
President Obama gambled that the threat of the automatic sequester of $85 billion in domestic and defense cuts would force the Republicans to accept major tax increases, and so far he is losing the wager. The Republican leadership, which was badly divided over the New Years deal that delayed the fiscal cliff, is now re-united around the proposition that Republicans will accept no further tax increases.
The latest dust-up in the descent of Bob Woodward from fearless investigative reporter to manipulative media celebrity began with his contention in aWashington Post column that President Obama, by asking for revenue increases as part of a deal to defer the sequester, was “moving the goal posts” from the 2011 budget deal (in which Obama got thoroughly hosed by the Republicans).
President Obama has miscalculated both the tactical politics of the sequester and the depressive economic impact of budget cuts on the rest of his presidency. The sequester will cut economic growth in half this year. But it’s now clear, one way or another, that we will get cuts in the $85 billion range that the sequester mandates this fiscal year. All that remains are the details.
We all do things that we regret. President Obama must surely regret that he ever listened to the extreme deficit hawks back in early 2010, when he appointed the Bowles-Simpson Commission, the fiscal zombie that just won’t die.
The commission is long defunct. The recommendations of its majority report never became law (because that required a super-majority). But the dreams and schemes of B-S have become the gold standard of deflationists everywhere. The test of budgetary soundness is: does it meet the recommendations of Bowles and Simpson?
Barack Obama’s State of the Union address last week—which called for, among other things, universal pre-K and raising the minimum wage—offered a bold program for rebuilding the middle class. But the president’s continuing commitment to budgetary austerity makes these commitments hollow, if not cynical. And just as Obama and the Democrats paid the price in the 2010 midterm election for excess caution and conciliation, the results of tokenism are not likely to be pretty in the midterms of 2014.
Massachusetts could be the harbinger of a hopeful national trend in Democratic Party politics – the reformer as regular. For 16 years, this bluest of blue states oddly kept electing Republican governors. Between 1990 when Gov. Michael Dukakis stepped down and 2006 when Deval Patrick took the governorship back, no fewer than four Republicans sat in the governor’s chair.
The consensus around debt reduction is beginning to crumble. Some straws in the wind are more careful attention to the actual numbers, as well as public conversions by such key players as Larry Summers and Peter Orszag, two former top aides to President Obama, who only yesterday were key members of the deflate-your-way-to-recovery club.
Summers wrote a piece in Wednesday’s Financial Timestitled “End the Damaging Obsession with the Budget Deficit,” pointing out that the more serious deficits were in jobs, wages, and infrastructure.
President Barack Obama won a tactical victory on New Year’s weekend by forcing Republicans to raise taxes on the top 1 percent, but he has far bigger challenges to address—and so do progressives. The economy is still at risk of several more years of hidden depression, with a high level of unemployment and no wage growth. The initial budget deal, thanks to Obama’s post-election toughness on tax increases on the rich and pressure by unions and progressive organizations not to cut Social Security and Medicare, was better than it might have been. But still to come are debates over budget cuts, with Republicans having the leverage of an automatic $120 billion “sequester” for this fiscal year now postponed to early March, if Congress fails to legislate its own additional deficit reduction.
Germany, the powerhouse of Europe, experienced negative growth in the last three months of 2012, down from a positive growth rate of 3 percent in 2011. Chancellor Angela Merkel, who more than any other leader inflicted austerity on the rest of Europe, is finding that what goes around, comes around.
Robert Kuttner is co-founder and co-editor of The American Prospect as well as a Demos Distinguished Senior Fellow. He was a longtime columnist for Business Week, and continues to write columns in the Boston Globe. He co-founded the Economic Policy Institute in Washington and serves on its executive committee.