By Luke Brinker
Willard Mitt Romney is going to be the Republican nominee, and barring the release of a sex tape or the discovery that he’s been running an abortion mill out of his New Hampshire country house, it’s hard to see what could change that. Romney’s financial juggernaut far surpasses that of his rivals. While Newt Gingrich may mar him as a “Massachusetts moderate,” Romney boasts a solid lead in conservative South Carolina, a primary won by every eventual GOP nominee since 1980. Conservative forces may talk of mounting an Anybody But Romney effort, but they can’t even agree on who the conservative alternative should be. The question is no longer whether Romney will win the nomination. It’s whether he’ll have it wrapped up by the end of the month.
Forgive me, then, if I wasn’t particularly interested in the fireworks between the candidates at this weekend’s debates. Instead, I was struck by a line of questioning pursued by moderator David Gregory in this morning’s NBC-Facebook debate. Gregory, mouthing platitudes about the “age of austerity” in which we live, asked Jon Huntsman to name three steps he’d take that would make Americans “feel pain.” Were the economic implications of the austerity regime demanded by Gregory not so disastrous, the spectacle of a lavishly paid talking head asking a candidate what he would do to make Americans “feel pain” would be rather amusing. (The loss of millions of jobs in the recession apparently wasn’t painful enough.) But one doesn’t need to be a bleeding heart to see the foolishness of Gregory’s argument. A passing familiarity with economics would suffice.
The dangers of premature austerity are well-documented. The lessening of government support from a fragile economy removes a crucial source of investment and economic stimulus. Consider the effects of President Franklin Roosevelt’s 1937 austerity regime, which halted the recovery from the Great Depression before FDR reversed course later in 1938:
For a more recent example, look no further than the case of Great Britain, where Prime Minister David Cameron and Chancellor of the Exchequer George Osborne are implementing a harsh set of austerity measures, as the Fiscal Times reported this summer:
The first year of austerity has not gone well for the Cameron government. In the public sector, where cutbacks are most severe, the figures for Cameron’s five-year plan are startling: a 68 percent cutback in government housing subsidies, a 31 percent cut in the budgets for the environment and rural support programs. Culture and sports, justice, local government, job training: All of these departments are looking at spending reductions of 25 percent or more.
Osborne’s commitment is plain: Long-term growth can be achieved only through cuts in spending. In essence, it is a replay of the phrase that made Margaret Thatcher famous among Britons back in the 1980s: “There is no alternative,” commonly abbreviated as TINA.
The Tories have options the Greeks do not enjoy, and not all has gone south. Since Britain controls its own currency, it can let the pound drop to stimulate exports. Unemployment is high, at 7.7 percent, but that is a stable figure and a marginal improvement since the spring, achieved even in the face of public-sector layoffs of more than 100,000 and counting.
But it is now clear that growth is a long way off. The economy has been stagnant since autumn, and all the major institutions—the Organization for Economic Cooperation & Development, the IMF, and a raft of private-sector forecasters—are dropping growth predictions to the range of 1.4 percent to 1.5 percent, even as Osborne sticks to a (relatively rosy) 1.7 percent estimate for the current fiscal year.
A more telling figure is the measure of retail sales. They fell by 1.4 percent in May, the most recent month reported, and we no longer have to wonder why British businesses are not investing. Why should they? The Cameron cuts are intended to restore business confidence, but why should deflationary fiscal policy make anyone confident when Britons are now demonstrating that they are too uncertain to spend?
So the results are coming in on Britain’s austerity crusade, and Americans should pay especially close attention, because we are contemplating what can now be established as the same mistake. It is this: Thinking austerity by itself will work.
Add to this a 2011 International Monetary Fund paper finding that “a 1 percent of GDP fiscal consolidation reduces real private consumption over the next two years by 0.75 percent, while real GDP declines by 0.62 percent,” and it’s clear how disastrous the economic implications of Gregory’s sadomasochism would be.
But aren’t Social Security and Medicare – the “entitlements” that Very Serious People are always calling on policymakers to “rein in” – bankrupting us? Health care costs must indeed be contained, but the solutions put forth by the Very Serious People would do nothing to solve the problem. Paul Ryan’s scheme to privatize Medicare would raise health costs for seniors, as Medicare is far more cost-efficient than private insurance. Shifting costs is ducking the problem of rising health care spending (on unnecessary tests, procedures, insurance company administrative costs, and so on), not solving it. As for Social Security, the Congressional Budget Office conducted a study in 2010 finding that a two-percentage point increase in the payroll tax paid by both employers and employees over 20 years would make up for the program’s 75-year shortfall. Lawmakers could also change the fact that only the first $90,000 of income is subject to the payroll tax.
The Village’s vapid utterances about the need to hunker down and “get serious” about “putting our fiscal house in order” have been repeated so often that their veracity is, unfortunately, taken for granted in all too many circles. But a cursory acquaintance with facts – the things David Gregory would have us believe he relentlessly pursues – puts the lie to the austerians’ economically illiterate arguments.