Cut services, then watch economy go into reverse
We have a big private-sector economy, which is floundering in stagnation. Chief among the victims are middle class Americans, some on the verge of losing their houses, others with their jobs exported out of the country, and others trying to figure out how to pay the accelerating costs of their kids’ education and their health coverage.
Meanwhile, instead of focusing on what it takes to get us out of this recession, conservatives in Congress are fixated on giving us a puny government. And too many liberals, including the president, are going along. They want to do only what they think they need to do to win the next election. Their politics trumps patriotism.
Indeed, while the president and the Republicans have stared each other into a total impasse about the debt ceiling, the forces undermining our economy have already won. The real question is just how much damage they will succeed in doing.
When the consensus is that a federal deficit is bad, and we have to cut government, then we know that the debate about lifting the debt ceiling is just cover for more fundamental damage to the American quality of life.
The unemployment rate in January 2009 in Snohomish County was 8.8 percent, in January 2010 it was 11 percent, in January 2011 it was 10.2 percent, in May it was 9.2 percent. Thirty-four thousand workers are officially unemployed in Snohomish County. In our state, that number tops 316,000.
We can only expect this to get worse, whether the president prevails with a lot of cuts to services and very few tax increases, or if the Republicans prevail with bigger cuts to services and a robe of protection around the very wealthy.
The United Kingdom provides a timely lesson. When the Conservative government was voted into office, it slashed government services in an “austerity to prosperity” approach to the economy. The result: zero growth for six months, dropping tax revenues, and no end to stagnation.
Turns out the problem isn’t government spending, it is household spending. That dropped by more than half a percent in the first three months of 2011. People don’t have jobs, those with jobs see their wages fall, and so consumption drops. With investors taking money overseas for new plants and production, the only thing to prime the economic pump is government services. When these get cut, the economy swoons.
State budget cuts are creating similar impacts here. When we lay off teachers, we are taking away their disposable income, and their consumption drops off. Not only are our children worse off in crowded classrooms, the local economy suffers another blow.
So what is it about the federal debt? In 1946 the federal debt equaled more than 120 percent of the gross domestic product. But, you say, we just fought the Second World War. And indeed we did, piling up huge deficits, and then proceeding to incredible economic growth for the next 30 years. That debt didn’t create a barrier for growth, it enabled us to grow.
Today our debt is about 92 percent of the gross domestic product, one quarter less than what it was in 1946. We can live with that. In fact, we can’t live very well without it. Increased government spending on services to the public (think education and health care, Social Security and Medicare), and increased investment in infrastructure (trains that actually go places quickly and on time, buildings for a new WSU campus in Everett) are the expenditures that will put our economy back on its feet. These expenditures deliver the things we should expect and demand in a democracy, like good teachers, good education, good transportation and good health care, while backing up consumer spending so that Main Street businesses will prosper.
The Republicans created this fake problem and the president catered to them. Every other Congress has signed off on a bill to increase the debt ceiling when this was needed, including six times between 1996 and 2006 when the Republican-controlled Congress added more than $4 trillion to the debt ceiling.
This Congress doesn’t need to cut government services as a quid pro quo to lifting the debt ceiling. That would just put our economy into reverse. The patriotic act would be to simply increase the debt ceiling. Then they can get back to the business of actually providing the services Americans need to get our economy back on its feet.