TUESDAY, AUGUST 14, 2012
We know that the supporters of austerity simultaneously urge us to reject “European socialism” while adopting the key European strategies that drove Europe into recession – twice. American conservatives assume that Europe must epitomize stringent
Most of Europe was in a weak recovery from that Great Recession when Berlin’s insistence on austerity (a pro-cyclical policy that causes recessions to become more severe) threw most of the Eurozone back into recession and much of the periphery into severe depressions. We have run a “natural experiment.” The U.S. adopted a modest counter-cyclical fiscal policy while Berlin forced Eurozone nations to adopt pro-cyclical fiscal policies. The result has been a modest recovery in the U.S. and a second, gratuitous recession in the Eurozone with depression-level disasters in much of the EU periphery.
Representative Paul Ryan is treated by many in the media as “serious” and “courageous” because of his proposals to reduce dramatically federal payments for social security and health care. He and Governor Romney call for a stringent austerity program to balance the federal
The call to “balance the budget” during a weak recovery from a Great Recession is profoundly unserious, wasteful, malicious, and self-destructive. It also displays a callous indifference to suffering of tens of millions of people. Most of all, it is obscene that the media still accepts as fact the myth that austerity would balance the budget. I explained recently why Spain’s austerity program caused its budget deficit to grow. This result is not anomalous – it is precisely what economic theory predicts will often be the result of pro-cyclical fiscal policies. Severe recessions are the leading cause of major budget deficits. Pro-cyclical fiscal policies (austerity) make recessions more severe by reducing private and public sector demand at a time when demand was already severely inadequate.
The unserious nature of the Romney/Ryan’s odes to austerity has been made clear by Romney’s admissions (twice) that adopting austerity at this time would be so self-destructive that it would likely throw the nation back into recession and by the lack of specifics and incoherence of Ryan’s “plan” to purportedly achieve a balanced budget while embracing enormous tax reductions for the wealthy.
The claim that deficits are immoral because they harm our children reverses reality. Austerity is the leading enemy of children. Forcing parents into unemployment and bankruptcy and their homes into foreclosure represents the leading assault on children. Counter-cyclical fiscal policies reduce the severity of recessions and speed recovery. Our automatic stabilizers help our children. Austerity harms our children. The “deficits are a burden on our children” argument rests on another economic myth. It is a myth that a nation with a sovereign currency like the U.S. is not “just like” a household with regard to deficits or surpluses. The U.S. has, throughout our history, overwhelmingly run budget deficits and history shows that every effort to balance the budget and reduce the debt was soon followed by a depression or the Great Recession.
Romney’s “morality” argument about deficits is doubly wrong. There is nothing “moral” about a budget surplus in the sense Romney is using the word. Pursuing austerity when it is likely to cause a recession is primarily insane, but it is also immoral because it causes gratuitous harm to many people, particularly the poor and working class. Unemployment represents economic waste from a societal perspective, but it is also immensely destructive psychologically and socially to the unemployed and their families. Pushing people into unemployment and poverty through austerity is an immoral act. Unemployment is not a necessary “sacrifice” that helps society. Austerity is vicious to the poor and it is wasteful, which makes it doubly immoral.
The media treatment of such facially unserious and self-destructive austerity proponents as serious and courageous is a classic example of creating a “moral panic” (e.g., “Reefer Madness). Accepting the deficit hysteria as a fact has become the media’s test for serious economists. UMKC economists’ self-description is “deficit owls.” UMKC economists recognize that a nation with a sovereign currency is not analogous to a household. One wonderfully revealing example of the effort to create a moral panic about the deficit is the on-line game: “Budget Hero.” Here is how Marketplace describes the game.
A new version of Budget Hero, the online game produced by the Public Insight Network team at American Public Media and the Wilson Center’s Science Technology and Innovation Program, allows you to test your own budget policy and see the effects of those cuts or increased expenses on the federal budget. Let the Bush tax cuts expire, increase revenue. Spend more on a program, see your deficit grow.The game site shows further sponsors, including the Corporation for Public Broadcasters, the MacArthur Foundation, the Richard Lounsbury Foundation, and Serious Games. The last sponsor proves we are dealing with a “serious” effort; except that the game is a farce that has been gimmicked to ensure the “serious” result. The game proves that it is essential that we adopt austerity and “serious” austerity requires slashing Social Security, Medicare, and Medicaid. How does the game do this?
First, the game is based on the myth that a nation can adopt austerity and ensure that it does not run a budget deficit. Think of Marketplace’s description of the game – if one spends “more on a program” the deficit increases. Spain illustrates why this is not likely to be true during the recovery from a severe recession. Spending more on a program can help spur a recovery and reduce the budget deficit. The game allows a player to choose “Economic Stimulus” as a “badge” (your primary fiscal strategy) but there’s a catch that the game doesn’t include in the badge’s explanation of that strategy – the game assumes that fiscal policy has no effect on economic growth or unemployment. No one believes that assumption is accurate. Any player that follows an “economic stimulus” strategy will experience a prompt “budget bust” failure because the game treats pro and anti-cyclical fiscal policies as having direct budgetary effects but no effects on the economy that would feedback into the budget. That assumption makes no economic sense, but it means that there is only viable strategy for the game. Austerity cannot throw a nation back into recession and increase the budget deficit the way it did Spain. Austerity can only reduce the deficit. The flip side is the game makes it impossible for economic stimulus to succeed in reducing the U.S. budget deficit. It follows that the game does not increase the deficit the way it did in Spain. In the game, stimulus cannot stimulate the economy – it can only increase the deficit. No one serious (or honest) about economics would design a game that is economically illiterate and gimmicks the answer so that austerity is the only viable strategy even though we observe it leading to disaster in Europe. One becomes a “hero” by embracing austerity and causing an economic catastrophe.
Note that the game does not even allow the obvious options to greatly reduce the severity of the recession and increase employment. President Obama’s stimulus proposal had an excellent revenue sharing component that was killed by a coalition of conservative (“blue dog”) Democrats and Republicans. Revenue sharing is a Republican concept that made perfect sense in countering the Great Recession because everyone knew that, unlike the federal government (which has its own sovereign currency), the states and localities faced hard budget constraints that would lead to cutbacks of public services and employment at precisely the worst time. Those cutbacks would harm the public and the economic recovery. Federal revenue sharing allows the states and localities to fund their top budgetary priorities. The game does not allow the player to employ revenue sharing.
The game also does not allow the government to provide funding to establish a “job guarantee” program that would guarantee that workers who were seeking work would be employed. A job guarantee program greatly reduces the economic waste and psychological and social devastation of widespread unemployment. It would greatly aid our recovery. The game does not allow one that option.
Second, the game makes it impossible to “earn” a “Budget Superhero” badge without imposing severe cuts on health care and social security. Any “serious” and “heroic” strategy must impose such cuts. That should cause us, unlike the game’s unserious designers, to question the game’s prominent use of the words “earn” and “hero.” My parents and teachers must have taught me a different definition of the word “hero” than the designers learned. I never knew that it was “heroic” to throw grandma, the poor, the sick (and the combination of all three) under the bus so we could reduce the budget deficit even if we believed the myth that austerity could ensure a balanced budget rather than throwing the nation back into recession and increasing the budget deficit. Propounding the propaganda that the politically powerful and wealthy “earn” the right to be considered “superheroes” by harming the poor, sick, and elderly represents the most morally depraved and dishonest economic idea of the modern era. To see American Public Media, the Corporation for Public Broadcasting, the MacArthur and Lounsbury foundations, and the Wilson Center shilling for this reductio ad absurdum of Social Darwinism is revolting.
Third, the game makes it impossible to be “heroic” without slashing Social Security and health care for the elderly and the poor because the game has other hidden gimmicks. These gimmicks again take the form of removed options – the game designers refuse to give you alternative means to balance the budget. (Again this assumes solely for purposes of analysis that balancing the budget was desirable.) I will discuss only four of the removed options.
• Increase taxes. The game allows the player to make only modest increases in taxes. Here are the only increases one is allowed to make. These increased revenues are over a decade, so the annual revenue increase of each is only one-tenth the figure shown.The game only allows one to increase annual taxes by roughly $160 billion (with a GDP > $15 trillion – a trillion is a thousand billion). Removing the option to have a significant tax increase demonstrates that the game’s designers were “serious,” but in a disturbing and dishonest way. The game designers thought seriously about how to gimmick the game to add to the moral panic that would lead the public to demand that politicians wield their budgetary axes against the elderly, poor, and the sick and would brand such cowards as “heroes.” The designers made it impossible to increase taxes sufficiently to produce a (net) reduction in the deficit.
Reform and simplify the tax code: $995 B
Phase out mortgage interest deduction: $215 B
Add 25 cents to gas tax: $291 B
Toxic tax: $25 B
End breaks for big oil: $21 B
No breaks for extractions: $9 B
Carbon tax: $21 B
Considering taxes should also lead us to reexamine the game designers’ use of the word “hero.” “Heroic” should be reserved for an unusual, severe sacrifice. Cutting benefits for other people never warrants that term. Raising one’s own tax rate does at least have an element of sacrifice, but when the middle class and above pay taxes we are not making an unusual, severe sacrifice. Wealthy Americans once routinely paid a far higher marginal income tax rate without claiming that doing so made them “heroic.” We are debasing the word “heroic” if we term the marginal income tax rates that existed under President Eisenhower as requiring “heroic” sacrifices by the wealthiest Americans.
• Cut health care costs. The fastest increase in any expense category, which indirectly drives the interest expense category, is health care. The extreme escalation in health care costs is the largest factor driving the moral panic about budget deficits. The obvious option is a public health care system. The existing insurance-based U.S. health care system provides no better health outcomes than the dreaded Europe (and many argue that Europe produces superior outcomes). We spend roughly twice as much (as a percentage of GDP) as Europe. The savings from adopting national health care would be massive (particularly over the lengthy time period the game employs). The national health care option, alone, would kill the moral panic propaganda. The game designers know about this alternative. It took serious thought for them to exclude it.The game designers thought seriously about how to bias every aspect of the game to produce the desired “moral panic” about the deficit. They did so disingenuously while constantly emphasizing their purportedly neutral, bipartisan, and serious approach. There are three motifs:
• Cut defense spending. The game allows moderate cuts to defense spending but there appears to be a hidden gimmick. The options appear to run out. I experimented by using every permissible defense cut (some of the cards “overlap” and cannot all be used), including the “freeze” defense spending levels game “card.” When I move the “date” bar I find that after a time defense spending begins to rapidly escalate. It is not clear what model is driving the assumption that our default spending level on defense should escalate from the status quo (where we spend more on defense than the nine next-highest spenders on defense – combined) to a far higher level. The game does not allow one to make far larger cuts to defense.
• Establish more effective financial regulation and prosecutions of elite white-collar criminals. The Great Recession is the latest of our recurrent, intensifying financial crises driven by an epidemic of elite accounting control fraud. The Financial Crisis Inquiry Commission reports that considering only the household sector, their losses were $11 trillion. Effective regulation is essential for financial markets. The game treats financial regulation as an expense.
• Panic!!!!!!The game designers used graphics and colors to emphasize the imminent disaster. They created four gauges. From left-to-right they are:
• There is no alternative – anyone who disagrees is not “serious.”
• Turn morality on its head – we’re throwing the poor, sick, and elderly under the bus because we’re making courageous sacrifices for our children.
• “Deficit/Surplus.” The designers did not use the conventional red v. black ink of accounting (which would have been bad enough in this context where a deficit is often the prudent policy, but green (safe) and red (danger). The needle’s starting position in 2012 is off the scale in the red! The deficit is greater than $1 trillion – the maximum value shown. One can hear Scotty screaming to Kirk: “Captain, she can’t take much more of this!”The messages and explanations that the game designers framed reinforce the game’s fallacious propaganda about fiscal policy and the nature of sovereign currency. I explained the absurd message that the game sends (“Your kids called to thank you”) that claims that our children would thank us for adopting austerity and throwing the nation into a gratuitous depression. The young adult unemployment rate in Spain is roughly 50 percent. The phone call they make to their parents is to say goodbye as they emigrate to other nations. Our kids join the elderly, poor, and sick as the principal victims of austerity.
• “Size of Government.” Why is this gauge present at all if the issue is the deficit? The game has a FAQ that tries to answer that question, but the real answer is the developers’ neo-liberal lens as can be seen by the scales and labels used on the gauge. The needle is on the maximum scale value – 25 percent – the biggest of “big” values possible for size of government shown on the gauge. No color on this gauge, but it too is red-lined.
• “Budget Bust.” Panic!!!!! The question is not whether America will collapse, but which year. The designers channel their own Mayan moral panic – wherever you place the year selector as the start date for the game the date of collapse (in red) is 2031. (If you make every defense cut “card” the game permits you push the date back to 2033. Panic!!!! The game scorecard then tells you that while you have not qualified as a budget “hero,” your children thank you for pushing back the date of the collapse by two years.)
• “% of GDP:Debt.” A pulsing, mostly red gauge that shows the inevitability that the American government will be destroyed by a red tide of debt. The starting point for the needle in 2012 in deep in the red region of the gauge.
The words and graphics reinforce the message that it is time to panic. The reader does not need to know that nations like Japan with sovereign currencies have debt-to-GDP ratios twice as large and are able to borrow funds at exceptionally low interest rates, that the U.S. has had larger debt-to-GDP ratios in its history, that the U.S. has run budgetary deficits for the vast bulk of its history and that such deficits helped it become an economic powerhouse, that severe recessions produce large deficits, that counter-cyclical fiscal policies have proven highly effective in reducing the severity and length of recessions (which reduces budget deficits), and that austerity rather than being “serious,” “heroic,” “moral”, or “the only alternative” is a disastrous policy to follow in response to a Great Recession and has intensified the Eurozone’s crises. There is literally no alternative in the game. The game does not allow you to be a “budget hero” unless you cut Social Security and health care.
Similarly, the designers’ explanation of the game spreads two of the most common myths about sovereign currencies and national debt.
“National debt, as a percent of GDP, rises if you spend too much or tax too little.”The first phrase falsely assumes that austerity, a pro-cyclical policy that makes recessions worse and can increase deficits and debt, is counter-cyclical. I end with the game designers’ embrace of our favorite myth about money: “your money runs out.” Seriously? If someone believes such a preposterous statement then ask them this hypothetical: if [fill in the name here of the nation you consider most hostile] were to attack us in 2031 – the game designers’ own Mayan “end of days” day that our “money runs out” – would we be forced to surrender?
“Your budget goes bust when your money runs out for anything other than social security, health care, and interest payments.”