How many economists does it take -- to make the Congress and the president and the media pay attention? Nobel laureate Paul Krugman has been warning of the dangers of austerity in his NY Times column and on TV for a long time. But the media treats him as an outlier, letting him say his piece about how another round of spending cuts aimed at deficit reduction could pitch the weak American recovery back into recession -- as it has in England and Ireland and now France and maybe even Germany. They listen to him, and then they go back to mouthing Peter G. Peterson nonsense about more deficit reduction being essential to economic revival.
Will they pay attention to 350 economists?
With sequestration spending cuts due to begin on Friday, 350 prominent economists have issued an important statement warning that "the fragile recovery is threatened by obsessive concern with cutting deficits that has infected both parties." The economists from universities and research groups across the U.S. are reminding politicians that the U.S. economy is still "marked by mass unemployment, rising poverty, and declining wages." And they are warning that big spending cuts aimed at reducing deficits could throw the economy back into recession.
The economists' statement, Jobs and Growth, Not Austerity, was written by Robert Borosage and myself, co-directors of the Institute for America's Future, and by Robert Kuttner of The American Prospect. The full statement and list of over 350 signing economists can be found at jobsnotausterity.org.
The economists point to the cautionary example of European countries that have in plunged themselves into recession as a result of misguided policies aimed at reducing deficits. The economists declare, "As Great Britain, Ireland, Spain and Greece have shown, inflicting austerity on a weak economy leads to deeper recession, rising unemployment and increasing misery."
Will they listen to 350 economists AND a shrinking economy?
There is no doubt that, after the 2009/2010 short burst of stimulus, America's turn to spending cuts has already damaged a very weak recovery. The Department of Commerce reports the economy stopped growing and actually shrank in the fourth quarter of 2012. And plaintive emails from Wal-Mart executives obtained in February by Bloomberg News, reflect a sharp decline in retail sales, driven by the last deficit deal that allowed the payroll tax cut stimulus to expire.
On top of this slowing consumer buying power, Congressional Budget Office director Douglas Elmendorf told Congress that if the $1.2 trillion across-the-board sequestration spending cuts are allowed to take place in March, the U.S. economy would lose 750,000 jobs in 2013. Other analysts have predicted sequestration would result in a loss of up to 1 million jobs.
While some corporate leaders, such as those affiliated with Fix the Debt, have urged Congress to take a hard line on deficit reduction, other corporate leaders have begun to warn that sequestration cuts -- or even a "grand bargain" aimed at avoiding sequestration -- could so damage the economic recovery that the U.S. could be stuck in low-growth or no-growth mode for years into the future. The economists releasing today's statement caution that the elements of a bad "grand bargain" could have such a contractionary impact on the still-fragile economy that the US could sink like the European nations into another serious recession and a decade of high unemployment.
"To make sure the American people are not crippled by another lost decade of joblessness," the economists call for "presidential leadership -- and congressional action -- to spur jobs and growth, not dangerous austerity."
Q: How many economists does it take to get politicians to pay attention?
A: 351 economists + millions of American citizens mobilized to demand Jobs Not Austerity.
This statement is published in full below. The statement and list of over 350 signing economists can be found at jobsnotausterity.org.
Please share it with your president, with your senators and members of Congress -- and, most importantly, with everyone you know who cares about the future of our country.
Jobs and Growth, Not Austerity
The U.S. economy, once in free-fall toward a new depression, has begun to recover. But we are still mired in a prolonged slump marked by mass unemployment, rising poverty, and declining wages. And the fragile recovery is threatened by obsessive concern with cutting deficits that has infected both parties.
As even Federal Reserve Chairman Ben Bernanke recognizes, it is long term unemployment, not excessive deficits or debt, that is now inflicting the greatest human toll and economic damage. Polls show that voters agree joblessness and a bad economy are much higher priorities than deficits.
Yet too many in Washington are fixated on cutting public spending to balance the budget, not on how to put people back to work and get our economy going. There is no theory of economics that explains how we can deflate our way to recovery. Businesses are not basing investment decisions on how much Congress cuts the debt in 2023. As Great Britain, Ireland, Spain and Greece have shown, inflicting austerity on a weak economy leads to deeper recession, rising unemployment and increasing misery.
In a deep recession, deficit reduction is a moving target. If you cut spending and consumer purchasing power in an already depressed economy, unemployment rises and revenues fall -- and the goal of a smaller deficit keeps receding like a mirage in a desert. When private purchasing power is depressed by the aftermath of a financial collapse, only public investment can make up the gap.
The budget hawks have the sequence backwards. Public outlay for jobs and recovery come first, growth is restored, and revenues follow. Budget cuts in a deep slump lead only to a deeper slump.
The government should invest in areas vital to our economy -- to repair crumbling infrastructure, to build 21st-century smart-grid, public transportation and renewable energy systems, and to create public and private sector jobs. We should also help states prevent layoffs of teachers and other public servants, make early care and higher education more affordable, and create public service jobs throughout the nation. It can do so by borrowing at record low interest rates. We can also stimulate recovery without increasing deficits by increasing taxes on the wealthy and pumping the proceeds directly into the economy.
Both bipartisan and conservative deficit reduction plans -- Simpson-Bowles, Rivlin-Domenici, and the Republican budget -- magically assume a recovery to "normal" levels of employment. Yet, the economy is nowhere near normal growth, and budget cutting will only retard growth. At the end of the year, we face a congressionally-created "fiscal cliff," with automatic "sequestration" spending cuts everyone agrees should be stopped to prevent a double-dip recession. That threat has led to backroom negotiations, backed by a multimillion dollar public relations campaign, toward a "grand bargain" that would maintain tax give-aways for the rich; cut Social Security, Medicare, and Medicaid; and impose new, job-killing spending cuts. This is no bargain, and it should be rejected.
President Obama should be commended for proposing a new jobs program. But unless the balance of power in Congress changes dramatically, there is a serious danger that after the election the austerity lobby will prevail.
We need jobs first. With recovery, deficit reduction will come of its own accord thanks to increased revenues in an improving economy. That was the case in the three decades after World War II -- when the debt to GDP ratio declined from over 120 percent of GDP in 1945 to under 30 percent by 1978.
In 1945, our leaders placed a priority on putting people to work, not cutting spending. So government doubled down with public investments like the GI bill, housing, and highways -- and widespread collective bargaining and equal opportunity laws made sure the rewards of growth were widely shared. Today, we need the same scale of public investments that made sure the greatest generation and their children enjoyed growth, opportunity, and shared prosperity.
In the face of today's weak economy, the Federal Reserve has vowed to sustain extraordinary measures until unemployment comes down and the economy picks up. But as Chairman Ben Bernanke observed, very low interest rates alone cannot fix this economy. To make sure the American people are not crippled by another lost decade of joblessness, we need presidential leadership -- and congressional action -- to spur jobs and growth, not dangerous austerity.
The statement and list of over 350 signing economists can be found at jobsnotausterity.org.