Monday, November 26, 2012

Fiscal Cliff/Austerity Bomb/Phantom Crisis

There have been many excellent reports online about the alleged "fiscal cliff," which is not a cliff at all but more of a "slope," and which really merits a far better metaphor of the kind that Paul Krugman and others have devised, the "austerity" bomb. A while ago, I wrote about what was behind the push for austerity, and I urge J's Theater readers who have not already read Krugman's column today, "Fighting Fiscal Phantoms" to review it, because he not only names the chief player behind the "fiscal cliff"/"deficit scold" testeria, but summarizes why it is hardly what we're being told it is, including by the White House, with the complicity of one of Krugman's employers, the New York Times. His column crystallized for me what I've long thought about why we keep running into this crisis around taxes, the social safety net (i.e., "entitlements"), the government's role, and the establishment media's unwillingness to spell out what's really at stake (or its willingness participate in manufacturing consent by playing up the crisis). When you have multimillionaires like Goldman Sachs's chief, Lloyd Blankfein, hopping aboard Trojan horses like "Fix the Debt" despite the fact that his company has gorged at the government's troughs, the game and fix are clear enough to me. Here are my thoughts, adapted from an email I sent to some friends and broken down into numbered points, about what's really behind the current fiscal cliff crisis.

The GOP and conservative Democrats, agents of the plutocracy (or the 1%, or oligarchy, or billionocracy, whatever designation you like), seek to:

1) slash the social safety net now so that there will be less need later to keep marginal and capital gains tax rates, especially for the 1% and corporations, at even the current historically low levels--making it likely that any future necessary tax increases will disparately impact the middle and working classes and the poor;

2) under the rubric of "tax reform," steadily ratchet down marginal rates on the 1%, lower corporate rates, zero out capital gains taxes, eliminate estate taxes, cut all loopholes that do not benefit plutocrats, and allow various territorial tax schemes that allow the 1% and corporations to avoid US taxes and play other federal, regional or territorial tax regimes against each other;

3) lock in spending for the military and any programs (like Fed Reserve spending) that benefit the top 1%, Wall St., military-industrial complex beneficiaries, and if it takes a war or three to guarantee it, so be it; 

4) privatize as much of the remaining government as possible, so that those with the access and assets can feed off all the new revenue streams and what remains of a severely weakened, defunded governmental system;

5) rhetorically demonize government, via the corporate media (which has a stake in picking the bones of the government dry) to blame it for its failure to address the needs of the 99% (or 47%), while destroying and sucking every last dollar out of it.

Speaker John Boehner, President Barack Obama meet
to discuss the "fiscal cliff," November 16, 2012
(Carolyn Kaster/AP,

But it doesn't have to be this way at all. There was a Budget of the Congressional Progressive Caucus that progressives in Congress have seemed incapable of championing, and the result is that the GOP, neoliberals and the establishment media see fit not merely to sneer but to bury it altogether. Even short of the Progressive Budget, though, the default of returning to the Clinton-era tax rates, which involve much more than the federal marginal income tax rates (the top being a relatively low 39.5%; top economists Emmanuel Saez and Thomas Piketty recommend a much higher rate of around 70%), but also capital gains taxes, the estate tax, the alternative minimum tax, and payroll taxes, just to name a few, is a better option that the austerity push with safety net cuts we have before us. De jure austerity has been a complete failure in Europe, and de facto austerity here, in the form of government cuts over the last 3 years, has kept the US economy from growing as robustly as it could. Furthermore, there are fairly simple fixes for Social Security that do no involve raising eligibility or reindexing it, while Medicare's and Medicaid's problems, more difficult to resolve, need not entail raising or restricting eligibility; a single payer system or Medicare-for-all would do more to lower health care costs and ensure Medicare's future than the fixes the GOP and Democrats are proposing.

Krugman states very clearly what I learned in introductory macroeconomics. We are not anywhere close to the Federal Reserve's inflation target for full employment. Price stability is not its only mandate, and the people and corporations sitting on cash will put it to better use as we approach the 4% target. Additionally we will not go bankrupt or encounter the problems of Greece or any of the other European peripheral countries because we have our own central bank and control our own monetary policy and currency. US monetary policy over the last five years has had a beneficial effect on the economy, and the libertarian Republican Ben Bernanke is hardly about to turn into Andrew Mellon or Paul Greenspan. We will not encounter the problems South Korea did in its debt crisis because most of the debt is in our own currency, and primarily owed to the US or American creditors. The cries about a weaker dollar overlook the fact that even in a weakened global economy weak dollars help the US with exports, providing a necessary jumpstart for the economy, and improving our balance of trade.

One thing that Krugman has been begging the President and Congress to consider is the basic Keynesian principle of borrowing now, with borrowing costs at near historic lows, to underwrite a massive jobs and infrastructure bill. We can more than make up the costs by increased revenues from higher tax rates and increased employment, and we will set ourselves up for even greater economic prosperity in the future with an improved and expanded infrastructure, a better educated populace, and an economy that is powering forward. Lastly, cram down legislation, which the banks and Wall Street have fought, and which their agent Timothy Geithner has worked hard to prevent, would be the best plan for the housing crisis. It's unlikely to happen, but that coupled with all the other strategies above, and a vibrant safety net that protects vulnerable Americans, would really help the economy in ways all the tax cuts in the world to billionaires never could.

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