Some 300 economists and civic leaders, including James K. Galbraith, Heidi Shierholz, Robert Reich, Leo Gerard and Helene Jorgensen warned this morning of the "grave danger" if austerity measures are imposed in the midst of the current weak recovery. Their statement to U.S. politicians offers an excellent counterpoint to the bad but totally expected Census report about impoverishment in the United States reported by Joan McCarter. The statement originated with the progressive Institute for America's Future:
In the fall of 2008 the U.S. and other major economies were in a free fall in the wake of a global financial crisis. Emergency stimulus policies here and around the world broke the fall, but brought us only part way to full recovery.
Today there is a grave danger that the still-fragile economic recovery will be undercut by austerity economics. A turn by major governments away from the promotion of growth and jobs and to premature focus on deficit reduction could slow growth and increase unemployment – and could push us back into recession.
History suggests that a tenuous recovery is no time to practice austerity. In the Great Depression, Franklin Roosevelt’s New Deal generated growth and reduced the unemployment rate from 25 percent in 1932 to less than 10 percent in 1937. However, the deficit hawks of that era persuaded President Roosevelt to reverse course prematurely and move toward budget balance. The result was a severe recession that caused the economy to contract sharply and sent the unemployment rate soaring. Only the much larger wartime spending of the early 1940s produced a full recovery.
Today, the economy is growing only weakly. 7.8 million jobs have been lost in the recession. Consumers, having suffered losses in home values and retirement savings, are tightening their belts. The business sector, uncertain about consumer spending, is reluctant to invest in expansion or job creation, leaving the economy trapped on a path of slow growth or stagnation. Over 20 million American workers are now unemployed, underemployed or simply have given up looking for a job.
The President and Congress should redouble efforts to create jobs and send aid to the states whose budget crises threaten recovery by forcing them to lay off school teachers, public safety workers, and other essential workers. It also makes sense to invest in public service jobs – and in infrastructure projects for transportation, water, and energy conservation that will make our economy more productive for years to come.
There's good reason to focus on America's outdated, crumbling infrastructure. Not only would spending there create jobs immediately, it would be an investment in the future, the same kind of investment that, for instance, is being made by China, which plans to spend $738 billion on renewable energy projects alone over the next decade.
The statement also recommends new sources of revenue, among them a financial transaction tax, a high-income surcharge, the Wyden-Gregg corporate loophole-closing proposal, ending billions in subsidies to Big Energy.
In a press conference announcing the release of the statement, former Secretary of Labor Robert Reich pointed out that now is exactly the wrong time to be pressing for cutbacks in public spending. Doing so "risks a repeat of 1937," a time when budget balancers and deficit hawks prevailed upon the FDR White House to prematurely adopt measures that reversed the growth of the previous four years and sent the U.S. economy back into depression.
The agenda of many of those fighting to curb deficit spending now, as the economy staggers, is not a new one. They are longtime foes of social insurance, of government investment, of regulation, men and women who reject the entire idea that government should provide a safety net, that it has any business directing the economy except to rescue the big guys when they screw things up. Listening to their siren call is always a bad idea. It's far worse now and risks putting a fragile economy completely on the rocks. Of course, those who suffer most from such a catastrophe will not be the wealthy who keep demanding sacrifices from all but themselves. It will be instead those who the Census highlighted today, and those in the middle class who could find themselves added to the poverty statistics in the next report.