A headline from today’s Los Angeles Times:
Congressional leaders jump in to save 'super committee'
In an effort to end the deadlock on deficit reductions, party leaders, especially on the Republican side, are meeting behind closed doors with members of the panel.
Okay, so perhaps we’re talking more about a legislative bailout of sorts, but is it not a perfect microcosm of the depravity of American politics that a panel convened due to the failure in leadership on the part of our “leaders” to figure out “responsible” ways to rein in fiscal deficits over the summer (“responsible” in Washington-speak meaning “measures that maximally shift any deficit-reduction burden onto the backs of the coddled lower and middle classes so as to spare the overburdened upper classes from having to pony up anything further in the way of taxes”) and which is now faced with “failure” (here meaning an automatic triggering of across-the-board cuts to the sacred cows of both left and right, in this case the entitlement and defense spending, respectively) due to fundamental disagreements on how much and how best to stick it to the lower and middle classes, is now being furiously “saved” by leadership so as to continue its “noble” work of further impoverishing millions who are already struggling. Note the journalist’s framing of the issue at stake here:
Failure to reach a compromise by Thanksgiving to slash $1.5 trillion from the nation's deficits over the next decade could send shock waves through the fragile economy, as happened during the summer debt ceiling standoff. Failure would also trigger automatic budget cuts that both parties want to avoid. (emphasis added)
The implicit assumption in the highlighted sentence is that the economy could be roiled by the “failure” of the Super Committee to reach agreement on deficit reduction measures other than those mandated in the trigger agreement. To be more specific, in this framing, the markets will react negatively if deficit reduction agreements of sufficient size and scope are not reached by the Super Committee. Indeed, I agree with this analysis, but for reasons other than those the journalist implies.
The markets may well face turmoil whatever the outcome of the Super Committee, because whether the Super Committee is “successful” or not, the vast majority of Americans lose in some way or another, facing elite-imposed austerity for what is a manifestly elite-generated economic crisis. Austerity, as has been witnessed in Europe the past few years, may work to reduce budget deficits in the short run, but in the longer term, as government spending is reduced, that compounds with reduced recessionary spending by consumers as well as businesses, thus leading to less consumer demand, hence more layoffs, hence lower tax revenues, which leads to calls for further austerity…the cycle is virtually endless. You then may get calls for a government to sell off or privatize public assets in order to create revenue, which ultimately reduces public wealth and resources in the long run. Counter-cyclical government spending is designed to stimulate demand in the short-term, in order to create positive spillover effects for the private sector and to avoid demand slackening to the point that you have a wave of business closures with the attendant layoffs and structural deformations of local/regional/national economies. The counter-cyclical government spending notion is the linchpin of Keynesian economic theory, and despite their professed love of free markets, many Republicans tend to like the Keynesian view of government spending policies as a remedy for a sick economy, at least when it comes to defense spending
Representative Chris Van Hollen, Democrat of Maryland and a member of the panel, said the attempt to undo the triggers “reflects a total lack of seriousness.” Adding that such efforts would not be successful, he said they were “the result of people trying to escape the fundamental choices before us, and one of those choices is whether or not we are willing to end special interest tax breaks to pay for defense.” The White House is also highly unlikely to approve such actions. The president is averse to the military cuts, but saw the threat of them as a way to pressure Republicans to reach a deal. “There is more fear this time,” Representative Mo Brooks, Republican of Alabama, said about the anxiety being expressed by military contractors in his district. Mr. Brooks said he voted against the debt-ceiling legislation because of the possibility of deep Pentagon cuts.
--
Republicans have expressed more alarm about possible across-the-board cuts in Pentagon spending than Democrats have voiced about cuts in domestic programs that would also occur. Many safety-net programs for low-income people, like Medicaid and food stamps, would be exempt from automatic cuts. And Medicare payments to health care providers could not be reduced by more than 2 percent. (emphases added)
Yes yes, make sure to protect the all-important “job creating,” “100% private-sector” defense contractors, and pay no attention to the mewling from the general public about the austerity they must contend with. We must ensure the revenue stream for government to the contractors is uninterrupted, lest their fraudulent schemes for bilking taxpayers out of their hard-earned money are subjected to closer public scrutiny!
At least 91 contractors holding contracts worth $270 billion were the subjects of civil fraud judgments -- and in some cases criminal fraud convictions as well, many of which resulted in fines, suspensions or debarments. Even so, Defense Department contracting officers still assigned $4.9 billion worth of work with these companies after the fraud was uncovered, the report said.
The contractors identified in the report include such blue-chip entities as Boeing, Lockheed Martin, General Dynamics, Pratt & Whitney, IBM and even the Yale medical school.
All this to say that the markets will likely react poorly to any austerity measures in the US beyond what has already been enacted, because corporations and the markets recognize that consumer demand is the weak link in the American economy at this time, not the impending threat of governmental default due to an overly burdensome public debt load (unless it is a default threat created out of Congressional dysfunction, as it was this past summer).
“You’ve got to stimulate demand growth,” said Indra Nooyi, CEO of Purchase, New York-based PepsiCo, in an interview. “Until we stimulate primary consumption, the cash will continue to sit on the sidelines.”
The companies’ warnings follow a cut to the U.S. credit rating on Aug. 5 and a two-week rout in global equity markets as investors dumped stocks in favor of gold and Treasuries. With three European countries having required bailouts, concern over weakening demand and rising unemployment is spreading. A report yesterday said confidence among small businesses fell in July for the fifth consecutive month as the sales outlook dimmed.
The quotations above are from August, but we find ourselves in virtually the same situation today (check the report headlines for the past number of months) with weak consumer confidence and corollary spending levels.
So here we witness a massive effort by our top elected officials to save a budget-cutting process that will likely impoverish our nation and citizens still further in order to spare from cuts one of the more fraudulent, yet highly-entrenched sectors of the national economy, while managing to simultaneously increase future budget deficits due to reduced tax revenues (driven by weak consumer spending, once again). These are the priorities and policy solutions of our elected officials these days. Tell me that isn’t a chilling thought. Once again, on whose behalf do they truly work?
No comments:
Post a Comment