Ho Hum, Another Crisis

by on February 26, 2013 in Economics

Hey everyone: it’s sequester week! Aren’t you excited?

No?

I don’t blame you. And you’re not alone. According to Pew Research only 27% of Americans give a fig about the upcoming sequester. This despite it’s evident and widespread negative impact. This contrasts with the 50%+ who claimed to be intensely interested and concerned about the first of our recent ‘crises’ back in 2011.

What happened to us?

I think that repeat crises and endless brinkmanship wears out even the most ardent political junky. There’s just so much stupidity we can all take from our leadership before we turn away and sink into the sweet embrace of reality TV. Anything, it seems, is better for our mental health than the sorry sight of Congress as it muddles us along towards our demise. It is far better to imagine that it’s not happening and then act surprised and angry when we realize just how far our once great nation has fallen. At least we can feel like we aren’t to blame.

But we are: we elect these clowns. They are our clowns.

Well, not really. Most of them come from South and West of here. So strictly speaking they’re their clowns. Whoever they are.

Meanwhile we should take stock of the damage we are about to suffer. Helpfully, the White House has published a series of fact sheets to tell us. Some highlights:

  • The FBI will lose about 1,000 agents
  • Customs and Border patrol will lose man hours equivalent to about 5,000 fewer staff
  • The FAA will lose about $600 million which will require furloughing staff. This will increase airport wait times rapidly, with the big airports having 4 hour waits become normal
  • Airport security will have to furlough its 50,000 officers
  • FEMA will cut back its aid to local emergency responders
  • Nationally funded research will be cut back with as many as 1,000 research projects into things like the cure for cancer being axed
  • The FDA will be forced to slow its new drug approval process due to lack of staff
  • Small business aid will lose $900 billion in funding
  • Oil and gas prospecting will slow down due to loss of staff and longer approval times for licensing
  • Food safety will suffer as the FDA slows inspections
  • Up to 398 national parks will be forced to close
  • Funding for about 2,700 schools for disadvantaged children will be cut. This will affect about 1.2 million school children
  • Approximately 32,000 teachers will lose their jobs due to funding cuts of various sorts
  • A whole swathe of social services will either be eliminated or severely reduced. These include: meals on wheels; social security help and processing; child care; rental help for the poor; emergency unemployment assistance; homelessness programs; mental health programs; AIDS treatment; and Native American programs;
  • Then there’s the 9.4% cut in defense spending each and every year for the next decade which will cause unemployment right across the defense industry and its subcontractors

But we don’t care. Do we?

Well maybe a little.

The problem is simply that the emergence of a hard right faction within the Republican party has exposed the rickety nature of our political system. It was designed to prevent dominance of any majority over the minority and thus preserve individual liberty, but an unintended consequence is that a determined minority can disrupt everything and bend the nation to its will. The radical right is now running the show.

That’s why we have had an endless series of these artificial crises since the GOP took control of the House back in 2010. In fact the first such crisis emerged only three months after they took control. So radical and out of the mainstream is their agenda that their only method for advancing their cause is to create a crisis and hope to force the White House into an appeasement that extracts ransom sufficient to push the right’s agenda a little further along. The tactic worked well until Obama’s re-election. During his first term he caved far too often and gave away far too much.

Why?

It wasn’t that he was simply weak. Although, in my opinion, he was. The fact remains that he represents a line ¬†of thinking within our elite that is dominant. That line of thinking is deeply flawed, but is both widely and deeply held. It is that our economy is too indebted; that our budgets need cutting; that fiscal policy – the use of the government budget as an active part of the economy – is not very effective; and that … drum roll please … austerity in some form or another is essential.

This all, to put it politely, is total balderdash.

Our debt is high but manageable. It has risen because we went through the mother of all recessions. Its rise was sharp but entirely explicable. It wasn’t due to some sudden surge in permanent government spending. It was subject to a massive swing due to the rotten economy and the consequent rise in emergency spending and the simultaneous loss of tax revenues.

That surge in spending has already abated. Government spending is falling back. Revenues are rising slowly too. There is no fiscal crisis. None.

So our federal budget doesn’t need cutting. At least not now. We have a few years to worry about health care spending which remains our largest challenge.

Which leaves fiscal policy.

Here I go again:

We need more, not less, spending.

Monetary policy – the Fed’s purview – has gone as far as it can. Interest rates have been forced as low as they can go. The economy is awash with cash much of which is sitting in corporate bank accounts and going underutilized. This means that the only policy lever we can pull is government spending and thus stimulus. Giving away more freebies to business won’t make them invest. They need customers with cash. That means we need to get the economy growing. And we do that by putting cash into the hands of people who will spend and not save it.

Yet here we are in sequester week talking about cuts to that spending. Going in exactly the wrong direction. We are headed into austerity.

And it isn’t as if we don’t know what that means. Just look at Europe. Do we really want to be that bad? Or that stupid?

Apparently.

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