Cliff Diving: The Austerity Debate is Looking Hollower Every Day

“One day, whole tribe falls off cliff.” —Chief Wild Eagle, Hekawi Indians Wow, that was a close one, wasn’t it? 

Photo illustration: Ed Johnson
Photo illustration: Ed Johnson

“One day, whole tribe falls off cliff.”

—Chief Wild Eagle, Hekawi Indians

Wow, that was a close one, wasn’t it?  We just missed going over that fiscal cliff!

Or did we? Technically, we walked right off it, with no compromise on the budget officially voted on and signed into law before the end of 2012.

But then, that was an intrinsic part of this whole tortured endgame. By letting the old George W. Bush income tax rates expire with the old year—and replacing them with new rates—both parties have now magically changed what is really a $620 billion tax hike over the next ten years into a mind-boggling $3.9 trillion tax cut.  Hurrah!  The magic of politics.

Barring some mad tea party revolt in the Republican-controlled House, the great budget compromise will be completed shortly and signed by President Obama. (The Constitution, a document Republicans claim to consider sacred and insist must be followed literally, specifies that the budget is supposed to originate in the House. But apparently such principles didn’t hold up to the greater need for John Boehner to hang on to his speakership.)

The deal reached in Washington has its flaws and its bright spots—such as the fact that unemployment benefits will be extended for another year, thereby aiding those Americans in most desperate need of help. In any case, it will no doubt be hailed as a sign that we can all get along, and calm the markets until the next manufactured crisis—the need to extend the debt limit—which won’t occur until … next month.

Lost in all this maneuvering is any rigorous analysis of why it’s so imperative that we conclude a long-term agreement to reduce the deficit right now, while we’re still crawling out of a devastating recession.

Thomas Friedman at The New York Times has been insisting forever that any budget deal should be a “grand bargain,” in which we cut Social Security and Medicare benefits, then use the money both to pay down the deficit and to invest heavily in infrastructure and technological research. He likes to call this “eating our vegetables,” or “taking our medicine,” and insists it will lay the foundation for a new era of American prosperity. The trouble is that it’s hard to see exactly how even roads and a new tech boom will help impoverished seniors desperate for health care. And, oh yeah, there’s the little problem that Republicans are insisting that any new revenue go toward reducing the deficit, period.

N. Gregory Mankiw, senior economic advisor to both W. and Mitt, warned us in the Times this weekend that “At some point, investors at home and abroad will start questioning our ability to service our debts without creating steep inflation.”

My goodness! When will this happen?

Well, Mr. Mankiw admits, “It’s hard to say precisely when … and even whether it will strike in this president’s term or the next.” But don’t worry: “when it does [happen], it won’t be pretty. The United States will find itself at the brink of an unprecedented fiscal crisis.”

Deficit pimps Alan Simpson and Erskine Bowles, skipping between comic YouTube videos and $40,000-a-pop speeches, titled their risibly portentous report on the subject “The Moment of Truth,” and insist in its preamble that “Deep down, every American knows we face a moment of truth once again.”

See that? Who needs reason or logic? If you’re a true American, you’ll know it in your heart. And have no doubt: “The problem is real. The solution will be painful. There is no easy way out. Everything must be on the table. Washingtonmust lead.”

What Messrs. Bowles and Simpson want is actually another cliché, the full “burn this village to save it” solution: $2.9 trillion in spending cuts and $2.6 trillion in tax increases of one sort or another over the next 10 years.

The alternative? You heard it all through the presidential campaign: “The contagion of debt that began in Greece and continues to sweep through Europe shows us clearly that no country is immune. If the U.S. does not put its house in order, the reckoning will be sure and the devastation severe.”

Right—because the United States is just like Greece, a poor nation of 10 million people that doesn’t control its own currency.

A better model might be another debt-swept European nation. That’s doughty old England, still clinging to the pound and coming off more than 30 years of just the sort of Thatcherite and New Labour economics so widely admired in the American media.

The U.K. plunged into an even steeper recession than we had, at almost the same moment and for much the same reasons: a burst housing bubble leading to a major financial crisis. By 2010, it had also pretty much matched our own sluggish recovery, the U.K.’s economy growing slowly but surely.

But about the same time “The Moment of Truth” came out, the U.K.’s Conservative-led government actually imposed the ruthless austerity program that Messrs. Simpson and Bowles advocated. This included massive social welfare cuts, the slashing of nearly all government departments by at least 25 percent, wage freezes for the remaining public employees and a wide array of tax increases.

All of this succeeded—in immediately plunging the nation into a double-dip recession. As the Boston Globe reported Sunday, Britain’s unemployment rate surpassed our own last October; it is now 60 percent above what it was at the start of the first “dip” back in 2008, and shows no signs of slowing. The country is devastated, with families mobbing its food banks.

“It’s a hard road, but we are getting there,” insisted George Osborne, the hard-right British chancellor of the exchequer. “Britain is on the right track—and turning back now would be a disaster.”

But this statement is as bizarre as Mr. Mankiw’s contention that we must inflict more human suffering now, out of fear that it might occur sometime before 2017—or maybe after. Economics is a function of time as well as money, not some theoretical quest. Years of mass unemployment and neglected public investment can never truly be recovered, either in shattered personal lives or the life of a nation. They mean emptied bank accounts, foreclosed houses, foregone opportunities, rusting job skills, despair and rage.

“Austerity” only makes it more difficult—if not impossible—to climb out of a recession. In the end, it’s difficult not to see all this rhetoric of pain and hard roads and vegetable-eating and heartfelt truths as anything but what Dick Cheney once trashed conservation as: “a sign of personal virtue, but not a sufficient basis for sound … policy.”

None of these commentators or economists or public officials will experience any actual pain from anything they’re proposing, nor will anyone they know. In the meantime, neither they, nor President Obama, nor the Republicans offer us even an acknowledgement of the central matter at hand throughout the Western world: how do you keep enormous, mass-consumer economies afloat while simultaneously eradicating their industrial bases, shrinking their public sectors, depressing wages and subsidizing the most irresponsible financial institutions in modern history? Cliff Diving: The Austerity Debate is Looking Hollower Every Day