A brief history of the battle for Wisconsin
The whole aim of practical politics is to keep the populace alarmed"by menacing it with an endless series of hobgoblins, all of them imaginary. H.L. Mencken
In January, Wisconsin swore in Scott Walker, an ambitious and opportunistic politician . Using traditional neoliberal rhetoric, Walker denigrated expansive governments and bloated bureaucracies and vowed to restore the economic vitality of Wisconsin by cutting business taxes, reigning in cumbersome regulations, and shrinking the state government. In February, he moved beyond these traditional neoliberal encomia to free markets and small governments, and proposed a budget repair bill that included provisions that would drastically reduce public unions' bargaining power and force public sector pay cuts . (The pay cuts were cleverly described as forcing public employees to contribute more to their health insurance and pensions; however, as noted by David Cay Johnston, employees already pay for the entirety of their insurance plans and pensions through deferred wages  .) When the details of the budget repair bill were disinterred, protests erupted .
The harsh measures were justified by an imminent fiscal crisis and fair sounding pronouncements about needing to distribute sacrifices equally. Public sector employees were disparaged and depicted as leaches who feed off of taxpayer money without contributing their fair share to the economy . These vilifications were almost certainly designed to resonate with citizens who couple distrust of governmental spending with an ambiguous animosity toward its employees. (To illustrate, a libertarian friend of mine has taken to calling public employees "fattened cows who can no longer produce milk"-apparently because they lack incentives.) According to a New York Times/CBS poll, however, such vilifications failed to persuade a majority of Americans . (According to most analyses, public employees actually receive less compensation than private employees, even after accounting for pensions and insurance  but see also .)
These justifications did not curb protests; and in the meantime, Wisconsin democrats delayed a vote on the bill by fleeing the state to prevent a necessary quorum . Debates erupted on television, on the internet, and in the streets as Wisconsin became a trope for the protracted neoliberal attack on unions . Protests continued and democrats continued to block a quorum; eventually, republicans claimed to excise fiscal components from the bill--a claim that is disputed--so as to allow a vote . The bill passed the senate 18-1 and then the state assembly 53-42. On Friday, March 11th, Walker signed the budget repair bill . Despite this, unions and democrats vowed to keep fighting and protesting; and law suits were filed claiming that because the bill contained fiscal elements, it was illegally passed ; for now, the legality of the vote on the bill remains unresolved .
Although the political battle in Wisconsin has received more media coverage, similar battles are occurring in many states, including Ohio, Idaho, Iowa, Michigan, Indiana, New Hampshire, Kansas, and others . In other words, although Wisconsin is a particularly compelling example of a state government pushing extreme neoliberal austerity policies, it is not alone. If we want to understand the economic/political situation in Wisconsin--and therefore, the economic/ political direction the United States is taking--we need to understand the underlying circumstances that manifested it.
The underlying conditions: A brief tour of neoliberalism
History may be servitude/History may be freedom. T.S. Eliot
In the late 70's, a new form of capitalism began to emerge, which is now called neoliberalism . According to David M. Kotz , some of the important features of neoliberalism in the United States are 1) deregulation of business and finance; 2) privatization of state services; 3) reductions in social spending; 4) decreasing taxes for wealthy individuals and businesses. These policies led to a growing disparity between rich and poor; an increasingly prominent financial sector that became engaged in risky activities; and a series of asset bubbles. Dume'nil and Le'vy  argue that the triumph of neoliberal policies was caused by a concerted effort of top managers and capitalists to restore power and profitability after a lull of several decades. In essence, the institutional and economic elites' interests coalesced and they used their collective power to impel the creation and execution of business friendly policies.
In the past, there would have been a countervailing power that could compel considerable compromise from this collective business power, namely labor unions (for the idea of countervailing power, see ) . However, by the late 70's, union power had been drastically attenuated. The story of its decline is complicated and multifaceted, but one important component is the left's general shift from material concerns (security, economic and physical) to post-material concerns (autonomy, self-expression)  . By the late 60's, many young liberals came from relatively affluent homes and attended universities. Concerns about economic security seemed quaint and uninteresting and were replaced with proliferating concerns about lifestyle liberties: gay rights, female rights, ethnic minority rights, reproductive rights. In fact, many of the educated left derided unions, believing that they were comprised of uneducated men who promoted moribund ideas and prejudices. This caused a split in the left and a general reduction of union power and prestige.
Neoliberal policies, however, would still have been difficult to enact because they conflicted with the concrete interests of most citizens. They needed an attractive package, a package that could command respect even as the bitter taste of the policies became undeniable. And they got just that in a propaganda campaign that cannot but provoke grim astonishment. Neoliberal policies were depicted as an extension of freedom and those who opposed them were characterized as meddling liberals who did not have faith in the common man to make reasonable decisions  . Furthermore, a precarious narrative was created that blamed all economic ills on government intervention . (This was and is precarious because corporations are dearly dependent upon the government. For a modern example of this ideology, see George Will's eloquent denunciations of government intervention .) In practice, of course, nobody who desires profit actually desires a free market (unless it benefits them), and neoliberal policies are not free market policies .
Since the late seventies, the fractionation of the left has continued, and the neoliberal narrative has become more potent. And with increasingly fervent denunciations of the government, a new bogey man has appeared: budget deficits. Deficits, of course, are a real concern; but they are often a necessary and important part of a reasonable fiscal policy; in fact, after world war two, the United State federal government ran its highest deficit in terms of percentage of GDP . Because the borrowing and investment led to increases in the productive economy, the deficit quickly evaporated. Today, however, this recognition has been replaced by an irrational fear and hatred of deficits--a hatred that has led to calls for a balanced budget amendment at the federal level (for a contemporary example, see ), and to actual amendments at the state level .
Lack of demand, asset bubbles, and wrecking state economies
"Advocates of capitalism are very apt to appeal to the sacred principles of liberty, which are embodied in one maxim: The fortunate must not be restrained in the exercise of tyranny over the unfortunate."Bertrand Russell
One of the major problems of the neoliberal economy is a chronic shortage of aggregate demand. Since consumer spending is checked by declining or stagnating wages and state spending is checked by cuts in social spending, reduced taxes on businesses and the rich, and a general culture of deficit paranoia, businesses face a problem of "realizing surplus value" (pg. 311 ). This has been solved by a series of asset bubbles that have allowed for greater consumer borrowing. Under the Clinton administration, there was a stock market bubble; and under Bush, a housing bubble . However, bubbles inevitably burst; and in 2007-2008, the 8 trillion dollar housing bubble popped, sending out a cascade of ugly consequences . The most immediate was a drastic reduction in demand which caused the recession that still plagues the United States economy.
At the state level, this recession has been particularly devastating. First and most obviously, the recession has caused a dramatic decrease in tax revenue. Consumers are spending significantly less, leading to lower sales tax revenue. Workers are earning less money, leading to lower income tax revenues. And property values have declined, leading to lower property tax revenues . Concomitantly, the need for state services has increased (unemployment insurance, Medicaid, TANF, et cetera). Furthermore, many states, including Wisconsin, made a number of ill-advised tax cuts in the late 90's. Those were never balanced by effectual tax increases during the downturn of 2001-2002, leading to volatile budgets and cuts in services .