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Robert Reich
NationofChange / Op-Ed
Published: Friday 14 December 2012
Cutting the budget deficit — either by reducing public spending or raising taxes on the middle class, or both — will slow the economy and increase unemployment.

Why is Washington Obsessing About the Deficit and Not Jobs and Wages?

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It was the centerpiece of the President’s reelection campaign. Every time Republicans complained about trillion-dollar deficits, he and other Democrats would talk jobs.

That’s what Americans care about — jobs with good wages.

And that’s part of why Obama and the Democrats were victorious on Election Day.  

It seems forever ago, but it’s worth recalling that President Obama won reelection by more than 4 million votes, a million more than George W. Bush when he was reelected — and an electoral college majority of 332 to Romney’s 206, again larger than Bush’s electoral majority over Kerry in 2004 (286 to 251).The Democratic caucus in the Senate now has 55 members (up from 53 before Election Day), and Republicans have 8 fewer seats in the House than before.

So why, exactly, is Washington back to obsessing about budget deficits? Why is almost all the news coming out of our nation’s capital about whether the Democrats or Republicans have the best plan to reduce the budget deficit? Why are we back to showdowns over the deficit?

It makes no sense economically. Cutting the budget deficit — either by reducing public spending or raising taxes on the middle class, or both — will slow the economy and increase unemployment. That’s why the so-called “fiscal cliff” is so dangerous.

In the foreseeable future our government has to spend more rather than less. Businesses won’t hire because they still don’t have enough consumers to justify additional hires.  So to get jobs back at the rate and scale needed, government has to be the spender of last resort.

The job situation is still horrendous. Twenty-three million Americans can’t find full-time work. Less than 59 percent of the working-age population of the nation is employed, almost the lowest percent in three decades. 4.8 million Americans have been out of work for more than six months. The 40-week average spell of joblessness is almost three times the post-1948 average.

And even those who have jobs are finding it harder to make ends meet. Jobs created since the trough of the recession pay less than jobs that were lost. The median wage is 8 percent below what it was in 2000, adjusted for inflation. And wages are still heading downward: Average hourly earnings in October were 3.1 percent below what they were in October, 2010.

This isn’t just an ongoing tragedy for 23 million Americans and their families. It also robs all of us of what these people would produce if they were fully employed – roughly $2 trillion worth of goods and services that won’t be created this year.

These folks would also be paying taxes — and they’d require less unemployment insurance, fewer food stamps, and less public assistance than they do now. According to estimates byBloomberg News, the total cost of those lost tax revenues and the extra social spending is more than twice what taxpayers will shell out this year to pay interest on the federal debt.

In other words, unemployment is hugely expensive. Debt, by contrast, is relatively cheap. The yield on the 10-year Treasury is only about 1.7 percent. Creditors worldwide are willing to lend America money that won’t be repaid for a decade at the lowest rate in living memory.  

So why are we debating how to cut the deficit when we should be debating how best to use the cheap money we can borrow from the rest of the world to put more Americans to work?

Because too many Democrats inside and outside the Beltway have ingested the deficit cool-aide that the “serious people” on Wall Street have serving for two decades.

And the President has been all too willing to legitimize their deficit obsession by freezing federal salaries, appointing a deficit commission, and, now that the election is over, going back to deficit-speak.

A month after the election Obama was on Bloomberg Television saying business leaders need “a deal on long-term deficit reduction” before they’ll increase hiring.

That’s just not true. Before they’ll increase hiring they need customers.

This article was originally posted on Robert Reich's blog.



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ABOUT Robert Reich

 

ROBERT B. REICH, one of the nation’s leading experts on work and the economy, is Chancellor’s Professor of Public Policy at the Goldman School of Public Policy at the University of California at Berkeley. He has served in three national administrations, most recently as secretary of labor under President Bill Clinton. Time Magazine has named him one of the ten most effective cabinet secretaries of the last century. He has written thirteen books, including his latest best-seller, “Aftershock: The Next Economy and America’s Future;” “The Work of Nations,” which has been translated into 22 languages; and his newest, an e-book, “Beyond Outrage.” His syndicated columns, television appearances, and public radio commentaries reach millions of people each week. He is also a founding editor of the American Prospect magazine, and Chairman of the citizen’s group Common Cause. His widely-read blog can be found at www.robertreich.org. Robert Reich's new film, "Inequality for All" is available on DVD
and blu-ray, and on Netflix in February.

Congress, the Prez and all

Congress, the Prez and all the government should be working primarily on doing everything in its power to mollify climate change and its effect. Mobilization à la WWII and the space program are what's needed. It would create jobs.

The politics around the

The politics around the deficit will impact whether the Upper Class can expect another 1% profit or not whether they NEED it or not. That is why their newspapers, radio and TV stations worry about it.
Unemployment is a problem of the Middle Class, not a big deal for the Upper Class.

I agree with the drift of

I agree with the drift of Reich's criticism, and believe Dems/Obama have been complicit (by acts of ommission and commission) with the ongoing Repub-led transfer of wealth from the 99% to the 1%.

However, while it may be a small point in the larger scheme of things, I disagree with Reich's criticism of Obama's 2011-2012 freeze on federal employee salaries. Federal employees are not suffering, and some consideration does need to be given to govt (ie tax-payer) debt.
Considering how many non-federal millions lost jobs, homes, savings, and benefits from late 2008 to date, how many millions took pay and benefit cuts, how many millions are yet unemployed or working for poverty wages without benefits, and how many more millions will join those ranks in 2013 and beyond, I think it was a fair and appropriate action to impose a two-year freeze on federal-employee pay-scales.

What has been obscenely unfair and destructive of the 99% in both the public and private sector are the huge tax cuts the 1% have enjoyed since Regan. Obama's proposed repeal of the Bush cuts granted the top 2% preserves roughly two thirds of the huge cut granted the high-income wealthy under Regan. And it is that huge cut that goes a long way toward explaining the deficit and the ongoing transfer of wealth from the 99% to the 1%.

In effect, Obama and company propose only to slow the pace of the wealth transfer that is slaughtering the 99%. Obama and company do not propose to reverse the transfer.

Count your blessings federal employees. With exception for high-level elites serving the oligarchs, Repubs will be gunning for you and the likes of Obama Dems will not come to your rescue. Neither will the scores of millions of private-sector working poor, especially if you fail to appreciate your blessings relative to theirs, and fail to scream bloody murder long and loud for economic justice for all.

Ralph Nader was one of the

Ralph Nader was one of the first during the 2008 presidential campaign to bring up the fact that there is virtually no difference between the two majority political parties that he refers to as a Duopoly. Both parties are and have been locked in to aggressively pursuing the same massive funding available from those people who hold all the wealth on the Right. Four years later and we see a repeat of the same actions on steroids with the help of the 2010 Supreme Court decision on Citizens United. History has recorded the fate of earlier civilizations that have taken the same path we are currently following never to be seen again. It's become clear that the American population has been sufficiently brainwashed to the point that the most important right that citizens have in a Democracy, voting for their representatives in government, has lost all meaning as they make their choices based solely on party affiliation. A significant change that could easily be accomplished and would be a good start toward removing party affiliation from the selection process would be removal of the Straight Party Selection on all ballots printed or computerized in this country. This is one process in any free Democratic society that doesn’t need to be reduced to a single choice !

Richard, you make a good

Richard, you make a good point. However I would emphasize that America's form of government never was a democracy. It has for most practical purposes evolved to a capitalist oligarchy run amok and administered via two-party arbitration. I think your suggestion is a good one, but the oligarchs and their arbitrators will never allow it. In other words, nothing will change until a majority of the 99% become so desperate that they revolt to overthrow the oligarchs and their arbitrators. And I think the risk is very high that the oligarchs and their arbitrators will try to preempt their overthrow by manipulating the desperate masses into support of overt fascism. In fact I think the groundwork for that is already being laid. Bear in mind that those corrupted by excessive power rationalize what they do as necessary, justified, or even good for others. Today's oligarchs and their arbitrators are not holding meetings and asking each other "What's the best way to deceive, manipulate, control, oppress, abuse, fleece and eventually slaughter the 99%?" Hitler and the Nazis believed they were Germany's righteous saviors.

Modern Monetary Theory has

Modern Monetary Theory has been arguing for years that a sovereign currency country does not need to borrow or tax to create money to fund public projects. Borrowing is a better option than austerity and under/unemployment, but a least a couple of proposals have been put forward to uncouple the money supply from borrowing and the congressionally self-imposed debt ceiling. Check out New Economic Perspectives for more information.

Good info. Unfortunately most

Good info. Unfortunately most people don't even realize the Federal Reserve is a for-profit corporation created and controlled by the banking cartel, and that it tells Treasury how many dollars to print, charging taxpayers interest for lending out that money at a profit, which loans are backed by taxpayers. It was introduced under Woodrow Wilson as a means to pay for WWI and finance government expansion. He later admitted he had been duped by the banking cartel and wrote of his fear that history would villify him for betraying the interests of the American people. JFK understood the legalized financial fraud. He issued an exec order directing Treasury Sec Dillon to abolish use of the Federal Reserve (and another order curtailing CIA power) just before he was assassinated. LBJ reversed both orders the very next day because he wanted to finance war in VietNam without the public becoming aware of the actual cost.

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