Austerity isn’t a political buzzword for Many Americans

You know if you’ve spent any time reading my thoughts that I am highly concerned by the level of income inequality in this country. Probably the thing that most concerns me is the number of people in Washington DC that continue to call for more of the very same policies that have wrecked the economy since the beginning of the century.  Dubya/Cheney brought us deregulation that crippled the financial markets and taxes so low that we know have an unsustainable debt position.  No one administration in US history has waged so many wars–literally and figuratively–on so many fronts and basically left most of the population with a huge bill. I am amazed that people like James Pethokoukis can even find outlets to publish their requests for more of the same. It’s pretty appalling but it’s typical of our media that seems more out of touch these days and ignorant of basic economics than our politicians.

Goldman Sachs doesn’t have to tell you things are bad. I don’t have to tell you things are bad. Everybody knows things are bad. Unemployment is at 9.2 percent (11.4 percent if the official labor force hadn’t collapsed since 2008 and 16.2 percent if you include discouraged and underemployed workers.)  Moreover, the economy grew at just 1.9 percent in the first quarter of this year and may have grown less than 2 percent in the second. Wages and income are going nowhere fast.

When will the White House signal a change of economic direction? Will cutting tax rates and regulation ever make it on the agenda? That may be the only way Obama can win another term. And time is running short.

This man seriously thinks that change in economic direction would come through more ridiculous cuts in taxes and regulation?  A change in economic direction would be towards policies that have worked in the past.  How could any one call for more of the same knowing the results that those kinds of policies yielded? Do we really need another recession and financial market melt down? We don’t have rich people using tax cuts to serve as jobs creators.  We have rich people and corporations using tax cuts to plop their wealth around the world to preserve that wealth.  We have the American middle and working class falling into poverty.

Here’s an example of what ignoring the jobs disaster and enabling wealth hoarders has wrought from The Economist. This article is called ‘The struggle to eat;  As Congress wrangles over spending cuts, surging numbers of Americans are relying on the government just to put food on the table’.

Take food stamps, a programme designed to ensure that poor Americans have enough to eat, which is seen by many Republicans as unsustainable and by many Democrats as untouchable. Participation has soared since the recession began (see chart). By April it had reached almost 45m, or one in seven Americans. The cost, naturally, has soared too, from $35 billion in 2008 to $65 billion last year. And the Department of Agriculture, which administers the scheme, reckons only two-thirds of those who are eligible have signed up.

Republican leaders in the House of Representatives want to rein in the programme’s runaway growth. In their budget outline for next year they proposed cutting the amount of money to be spent on food stamps by roughly a fifth from 2015. Moreover, instead of being a federal entitlement, available to all Americans who meet the eligibility criteria irrespective of the cost, the programme would become a “block grant” to the states, which would receive a fixed amount to spend each year, irrespective of demand. The House has also voted to cut a separate health-and-nutrition scheme for poor pregnant women, infants and children, known as WIC, by 11%. (The Senate, controlled by the Democrats, is unlikely to approve either measure.)

Advocates for the poor consider such cuts unconscionable. Food stamps, they argue, are far from lavish. Only those with incomes of 130% of the poverty level or less are eligible for them. The amount each person receives depends on their income, assets and family size, but the average benefit is $133 a month and the maximum, for an individual with no income at all, is $200. Those sums are due to fall soon, when a temporary boost expires. Even the current package is meagre. Melissa Nieves, a recipient in New York, says she compares costs at five different supermarkets, assiduously collects coupons, eats mainly cheap, starchy foods, and still runs out of money a week or ten days before the end of the month.

It is also hard to argue that food-stamp recipients are undeserving. About half of them are children, and another 8% are elderly. Only 14% of food-stamp households have incomes above the poverty line; 41% have incomes of half that level or less, and 18% have no income at all. The average participating family has only $101 in savings or valuables. Less than a tenth of recipients also receive cash payments from the Temporary Assistance for Needy Families programme (TANF), the reformed version of welfare; roughly a third get at least some income from wages.

Spending on food stamps has risen so quickly because, unusually, almost all the needy are automatically and indefinitely eligible for them. Unemployment benefits last for a maximum of 99 weeks at the moment, and that is due to fall to six months from next year. No one knows exactly how many people have exhausted their allotment, as the government does not attempt to count them. But almost half of the 14m unemployed have been out of a job for six months or more, and so would no longer qualify for benefits under the rules that will apply from January 1st.

Krugman states the obvious or “what ordinary economists” would find the policy measures under these situations in his blog today. It is exactly the opposite of what the group think in Washington DC is producing.

So, terrible growth prospects; low inflation; oh, and low interest rates, with no sign of the bond vigilantes. Ordinary macroeconomic analysis tells you very clearly what we should be doing: fiscal expansion and monetary expansion by any means we can manage; in fact, the case for a higher inflation target pops right out of just about any model capable of producing the kind of mess we’re in.

And what are we talking about in policy terms? Spending cuts and an end to monetary expansion.

I know the arguments — fear of invisible bond vigilantes, fear that 70s-style stagflation is just around the corner despite the absence of any evidence to that effect. But why do such arguments have so much traction, while everything economists have spent the last three generations learning is brushed aside?

One answer is that macroeconomics is hard; the idea that if families are tightening their belts, the government should do the same, is as deeply intuitive as it is deeply wrong.

But the susceptibility of politicians — including, alas, the president — and pundits to these wrong ideas demands a deeper explanation.

Mike Konczal ratchets up my rentier argument, arguing that what we’re seeing is

a wide refocusing of the mechanisms of our society towards the crucial obsession of oligarchs: wealth and income defense.

That has to be right. It doesn’t necessarily take the form of pure cynicism; it’s more a matter of the wealthy gravitating toward views of economic policy that make immediate sense in terms of their own interests, and politicians believing that only these views count as Serious because they’re the views of wealthy people.

But the upshot is terrible: more and more, this really does look like the Lesser Depression, a prolonged era of disastrous economic performance. And it’s entirely gratuitous.

It’s just hard for me to even find words about how misguided fiscal policy is these days.  We have financial markets clamoring for less regulation not because they want to operate efficiently or because they want healthy competition, these folks are asking for removing basic oversight that prevents price gaming, moral hazard, information asymmetry, and oligopoly style games. We have two protracted wars that have never been fully financed.  We have bailouts of failed institutions that have never been financed.  We also have tax cuts that were not offset by spending cuts but made worse by giveaways by a Republican administration and a Republican congress and exacerbated by a Democratic administration. Obama’s stimulus was top heavy with useless tax cuts. What sort of craziness does it take to try to put those same policies on steroids then expect them to create different results?

What we currently are experiencing is a complete Aggregate Demand vacuum.  We have the rich hoarding wealth or putting it in other economies and the rest of the country struggling to just exist if they have jobs.  Then, we have a huge number of people that have neither wealth or jobs.  This is WHEN we need the government to boost spending. We didn’t need all that during the last part of the Bush years but what we got was a period of throwing the US Treasury to the wind.   We’re in deep trouble here folks and I have no faith that any of our policy makers will ever wake up and do the right thing.