Richard Wolff: Austerity: Another "Policy Mistake" Again

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Austerity: Another "Policy Mistake" Again

Friday, 08 March 2013 00:00
By Richard D Wolff, Truthout | Op-Ed


Capitalism prescribes the same policy mistakes over and over again - austerity, punishment for debtors (unless they are financial institutions), labor cost cutting – that exacerbate its inevitable crises. When will we attack the structural roots of crisis?

Shoddy political theater distracts people with vague demons called debt ceiling, fiscal cliff and now, sequester. Party leaders posture for major donors, media boosters and the faithful. They claim to save us from the demons. Meanwhile, backstage they all agree on austerity as the "necessary" response to "our major problem," namely federal budget "imbalance." "We" are spending "beyond our means," accumulating "government debts." So "we" must raise taxes and cut spending - impose austerity - to regain balance.

On January 1, payroll taxes rose (from 4.2 to 6.2 %) for 150 million Americans. Their checks shrank as that regressive tax became more so. Obama's hyped "tax increase for the rich" was comparatively trivial. It affected only the very few Americans earning over $450,000, raising their top tax rate from 35 percent to 39.6 percent. Our leaders hope we forgot the 1950s and 1960s, when the top tax rate was 91 percent. On March 1, the sequester hit, unleashing federal spending cuts.

Higher payroll taxes cut personal spending on goods and services; that worsens unemployment. That reduces income and sales taxes while requiring more unemployment compensation, thereby also worsening Washington's budget imbalance. By cutting federal spending on goods and services, the sequester also worsens unemployment, reduces tax revenues and increases unemployment compensation outlays. No wonder critics scream that austerity now is crazy and counterproductive. Europe's three-year austerity program pushed its unemployment rate in February 2013 to 11.9 percent.

Why do "our leaders" agree on austerity (and disagree only on its details)? Why ignore that austerity not only undercuts the economy, but risks the government's budget too? Why ignore alternatives to austerity? For example, tax the largest corporations and richest 3 percent to fund a bottom-up stimulus program. That could help balance the federal budget, directly aid most people and likely outperform the failed top-down (trickle down) policies of Bush and Obama. FDR's policies in the 1930s provide one example to start from. ...................(more)

The complete piece is at: http://truth-out.org/opinion/item/14917-austerity-another-policy-mistake-again