The Zombie Rises: The Return of Simpson-Bowles

Take a good look at Europe -- bloody riots in Athens and Madrid, rising unemployment, spreading poverty and suicide, and a deepening recession -- because the current American elite consensus bizarrely wants to drive America down that same path.

Europe's miseries come from imposing austerity before recovering from the recession caused by the financial collapse. Conservatives in Germany and England inflicted harsh measures to enforce budget discipline -- hiking taxes and cutting spending.

In the U.S., the Obama recovery plan and the deal with Republicans over extending the Bush tax cuts combined to limit and slow the imposition of austerity. The result: Europe is sinking, while the U.S. economy retains slow but halting growth.

But now the deficit hawks are gearing up for another run at driving the U.S. back into economic recession.

The Coming Train Wreck

At the end of the year, we face a train wreck. After the November election the Bush tax cuts, the payroll tax cut and extended unemployment benefits will expire. The automatic cut -- "sequester," in budget speak -- of nearly 10 percent of military and domestic discretionary spending (everything except guaranteed programs like Medicare and Social Security and interest on the national debt) kicks in. We even hit the debt limit to add to the high stakes.

If all this is allowed to occur, it will subtract over 3 percent of GDP from an economy growing at 2.5 percent or less. A drop back into recession would be almost inevitable. So a deal is needed.

The Zombie Returns

But the deal in everyone's head is some kind of "grand bargain," like that almost cut by House Speaker John Boehner and President Obama last year, or like that outlined by the co-chairs of the President's deficit commission, Erskine Bowles and Alan Simpson (which failed to gain the needed votes to pass the commission).

Centrist Democrat Kent Conrad, chair of the Senate Budget Committee, has announced that he will use the Simpson Bowles recommendations as a guideline for budget negotiations that he assumes will take place if the lame duck Congress have the election.

There's lots not to like in Simpson-Bowles, which marches under the banner of "shared sacrifice" at a time when 1 percent of the population is capturing 93 percent of the rewards of growth while paying the lowest tax rates in living memory.

But the horror is less the bad terms of the supposed bargain than its zombie-like infliction of austerity on an economy barely out of the emergency room.

We've still got some 23 million people in need of full time work. We haven't recovered the jobs that were lost in the collapse, much less the jobs needed for young people coming into the economy. Wages are still failing to keep pace. Nearly one in four mortgages are under water; foreclosures are rising.

Yes, we have trillion dollar deficits. But austerity -- some deal that raises taxes and cuts spending -- will put more people out of work and make reducing deficits even harder.

Global Growth

After experiencing the horrors of this misguided policy, European leaders will eventually turn back to trying to get their economies moving again. What we need this fall is a different grand bargain -- a global agreement, like that which was forged in early 2009, for coordinated action by governments to reinflate the economy -- to borrow and spend to put people back to work.

For this to occur, the bipartisan elite fixation on inflicting austerity must now be challenged. If we are to avoid a lost decade or worse, we need action to support still weak and staggering economies. Global coordination would be the best way to achieve this goal, and it requires putting a stake in Simpson-Bowles, the Boehner-Obama grand bargain and other zombies.

In this country, the necessary remedies are clear. With interest rates near zero, a decrepit infrastructure that must be rebuilt and a construction industry flat on its back, anyone with a whit of business sense would finance a massive Rebuild America program over the next few years. This would put people back to work and build the foundation for a more competitive economy. We will never have a better opportunity to make the investments that we will have to make anyway.

We should send money to states to rehire teachers, make universities affordable, and strengthen, not weaken, our public schools. It's simply nuts to make kids pay the price of Wall Street's follies.

And if we could get beyond ideological perversities, we'd set up a green corps, an urban corps and a jobs corps to guarantee a job for every veteran and young person under 25. No one should risk their life for the country and return to an economy with no place for them. Young people are coming out of school into the worst economy since the Great Depression. Condemning them to idleness is a recipe for depression, drugs, crime and misery. And we will all pay dearly for a lost generation.

Certainly, we have to be serious about getting our books in order. The wealthy and the corporations should pay more so we can afford the investments we need. But the overwhelming source of our long-term budget woes comes from projections of soaring health care costs. If we paid for health care at the rate other industrial countries do (with better results), we would be projecting surpluses, not deficits.

But right now, the focus should be on putting people back to work and getting the economy moving. Until that happens, austerity -- as Europe is now experiencing -- is a contagion, not a cure.