Austerity DINOs and Other Villains of the Piece

Whatever happened to the proven fact that the only way out of a recession is government spending leading to economic growth? It's still here, says Josh Marshall, it's just been smothered by the insanity of repug politics.

I'm talking about the broad proposition of that in the face of a dramatic shortfall in demand following an economic crisis, the government plays a critical role as the provider of demand of last resort in getting an economy back on its feet. In the context of the moment that means a big role for government spending. (Put me down in the group of those who think we'll do better getting the indebtedness problem under control by focusing on jobs and growth that will provide revenues to in large measure grow our way out of the problem.)

The difficulty we find ourselves in is that we came into the crisis already having built ourselves a major structural budget deficit. So we face real long-term indebtedness issues right at the time we need the federal government to pick up the slack. Obviously, these arguments have been rehearsed endlessly for the last couple years and then more broadly back into the 1920s and 1930s.

What's changed? Not the economics, but the politics. And as grievous a price as I suspect we'll pay, I'm not certain it should greatly surprise us. Something similar happened, though less acutely, with Franklin Roosevelt in the late 30s, when he was convinced -- for a mix of political and economic reasons -- that it was time to start budget balancing. The economy lurched back into a second, albeit less acute, stage of the Depression.

There's something in the nature of the political economy, forces vastly stronger today than they were 80 years ago that leads to this. And there's a simple paradox. It does make some intuitive sense that the government should have to tighten its belt when the rest of the country is. Only it's not true. And like a disoriented pilot without instruments to guide, what definitely makes sense can prove fatal.

So what's wrong with the politics? A president unwilling to accept the fact of repug insanity, according to Ari Berman in The Nation:

“Our plan includes more cuts,” Chuck Schumer bragged at a news conference on Capitol Hill yesterday when comparing Harry Reid’s debt plan to John Boehner’s.

That fact that Senate Democrats are trying to out-cut the cut-obsessed Republicans pretty much sums up the current political debate in Washington. “Harry Reid’s plan wins the austerity sweepstakes,” Adam Serwer wrote yesterday. “It's the austerity party vs. the austerity party,” blogger Atrios tweeted.

President Obama has actively shifted the debt debate to the right, both substantively and rhetorically. Substantively by not insisting on a “clean bill” to raise the debt ceiling at the outset and actively pushing for drastic spending cuts and changes to entitlement programs as part of any deal. And rhetorically by mimicking right-wing arguments about the economy, such as the canard that reducing spending will create jobs (it won’t), or that the government’s budget is like a family’s budget (it isn’t), or that major spending cuts will return confidence to the market and spur the economy recovery we’ve all been waiting for (Paul Krugman calls it “the confidence fairy”).

“For the last few months, I and others have watched, with amazement and horror, the emergence of a consensus in policy circles in favor of immediate fiscal austerity,” Krugman wrote on July 1. “That is, somehow it has become conventional wisdom that now is the time to slash spending, despite the fact that the world’s major economies remain deeply depressed. This conventional wisdom isn’t based on either evidence or careful analysis. Instead, it rests on what we might charitably call sheer speculation, and less charitably call figments of the policy elite’s imagination.”

In the last few weeks, the austerity hawk choir has only gotten louder. President Obama has successfully used the bully pulpit to undermine the case for progressive governance.

Even after the 2010 election, which supposedly was a referendum on government spending, there was little evidence that the public cared about the deficit and a lot of evidence that they wanted Washington to address the jobs crisis. For example, 56 percent of Americans ranked the economy and jobs as their top priority for the new Congress following the election, while only 4 percent named the deficit.

By a two to one margin, according to a July Quinnipiac poll, Americans still believe that reducing unemployment is more important than cutting the deficit. But they only narrowly believe that reducing unemployment is more important than reducing federal government spending, by a 49 to 43 margin. And the public now says that “major cuts in federal spending” would help, not hurt, the economy, a 15 point reversal from March.

Things might have been different had President Obama made an aggressive and sustained argument that the government still has an important role to play in spurring an economic recovery and creating jobs. Instead, the president sided with the austerity hawks and strengthened the elite Washington consensus.

Throughout the debt ceiling debate, Obama keeps touting how he’s bucking the activists in his own party. It seems as if the president wants to run against the Democratic base in 2012 and position himself as the supposedly sensible centrist candidate. As a result, the president’s approval ratings among liberals are at the lowest point of his presidency.

That “triangulation” strategy worked for Bill Clinton in 1996, although he had the benefit of a rapidly growing economy. My guess is the 2012 election will be much more like 2004 than 1996, when the country is fiercely divided about the incumbent leader, unsure of the opposition, and in a politically restive mood. If that’s the case, Obama will need his base to knock on doors, make phone calls and persuade undecided voters who to vote for. That’s how Bush won in ‘04, by ratcheting up Republican turnout in states like Ohio. The more Obama bucks his supporters—and keeps ignoring the jobs crisis in favor of deficit hysteria—the dicier his path to re-election becomes, especially if the economy continues to lag.

But let’s forget about the 2012 election for a moment. Right now, the public is being deprived a real and vital debate about how to solve the economic crisis. Obama is governing like a moderate Republican. Republicans are governing like Grover Norquist. The net effect is that US politics keeps shifting further and further to the right.

Liberals know you can't cut your way out of a recession, and you can't reason with drunk, crazy or stupid people.