More than 300 economists and policy analysts just released a statement warning Congress and the administration that bold action is needed to put people to work and get the economy going. The statement -- "Don't Kill Jobs and Growth in the Name of Deficit Reduction" -- was released by the Institute for America's Future (which I co-direct) and is available here.
In the partisan election debate, with Tea Partiers ginning up hysteria about incipient socialism and out of control spending, the statement offers a series of common sense propositions.
1. It is time for bold steps to put people to work
We have an economy marked by faltering growth and mass unemployment. 30 million people are looking for full-time work. Poverty is rising. Companies are sitting on cash, unwilling to hire with no customers in sight. Families are still reeling from the loss of trillions in retirement savings and value in their homes. Rising trade deficits sap job growth. There are only four sources of demand in the economy -- consumers, business, exports and government. With the first three nearly comatose, the fourth must act.
2. Grab this moment to rebuild America
Everyone agrees we have a decrepit and aging infrastructure.
Collapsing gas mains, leaking sewers, falling bridges, shorted train
switches, schools dangerous to the health of the children -- we suffer
it all around us. Much was built in the 30s-50s or earlier and has
simply worn out. There will never be a better opportunity to rebuild.
Construction workers are idled and in need of work. Government can
borrow at near record-low interest rates. Anyone with a whit of
business sense would see this is an extraordinary opportunity to rebuild
3. Premature turn to deficit reduction won't reduce deficits
There is no clearer testament to the divorce of ideology from common sense than the position of House Republican leader John Boehner who calls for cutting $100 billion out of domestic discretionary spending next year -- nearly 15% of the total. This is lunacy. It will increase unemployment and slow growth. That in turn will reduce government revenues and increase costs in unemployment insurance, food stamps and other benefits. Austerity in the midst of a stagnant economy is more likely to increase deficits than to decrease them. Surely we should not forget the lesson of 1937, when Roosevelt -- having reduced the unemployment rate from 25% in 1932 to less than 10% in 1937 -- was persuaded to move towards budget balance. The result caused the economy to contract sharply, sent the unemployment rate soaring and drove us back into a recession solved only by the mobilization for World War II.
4. Building the new economy will help get our nation's books in order
Even in the medium term, once the economy gets going, we should be focused on what is needed to create an economy that works for working people, not on austerity. Consider the end of World War II, when we emerged with a wartime economy and debts of 120% of GDP, or about twice the burden they are now.
Our leaders did not turn to austerity. They saw themselves, inescapably, "present at the creation" of a new economy. They passed the GI Bill and sent a generation to college or advanced training. They subsidized the conversion of defense industries to civilian production. They subsidized housing and built the suburbs. Eisenhower, a Republican president, kept top-end tax rates at 90%, put a lid on the military budget, and built the interstate highway system. The debt kept going up as an absolute number, but the economy grew, the broad middle class was created, and by 1980, the debt was down to 33% of GDP and not a problem.
We face the same choice. We can focus on balancing our accounts, or we can focus on building the new foundation for the economy -- investing in education, 21st century infrastructure, research and development, making the transition to new energy, grabbing a lead role in the new green industrial revolution -- and grow our way out of the hole we are in. One reflects a timid and frightened nation, worried about ordering its books before the takeover. The other a confident nation prepared to renew itself.
5. Don't fix what isn't broken
As the economy recovers and people go back to work, we will have to pay for the investments we make. Some of this should come from warring on waste and new priorities -- like axing subsidies to Big Oil, or cutting a Pentagon that spends as much as the rest of the world on the military. Some, at a time of Gilded Age inequality, should come from progressive tax reforms. Some can come from taxing what we want less of -- like financial speculation, or excessive carbon use.
But it is critical to focus on what is broken and not on what works. We do not have an "entitlements crisis" despite all blather to the contrary. We have a broken health care system. Virtually the entire terrifying long-term debt projections come from soaring health care costs. If we spent what the Europeans spend per capita on health care (with better health care results), we would project surpluses as far as the eye can see right now. Fix health care, and you fix any long-term debt concerns. Fail to fix health care, and you can sack the government, we'll still go bankrupt.
Social Security, on the other hand, isn't broken. It hasn't contributed to the deficits -- in fact it has amassed trillions in surpluses to prepay for the boomers retirement. It contributes a negligible amount to long-term debt. Minor adjustments -- like insuring that those making more than $106,500 a year pay the same rate as those making less -- will solve almost all of long-term projected shortfalls.