General Discussion
Related: Editorials & Other Articles, Issue Forums, Alliance Forums, Region ForumsThe Austerity Class is Wrong: Budget Cuts Hurt Our Economy
http://www.alternet.org/newsandviews/article/831610/the_austerity_class_is_wrong%3A_budget_cuts_hurt_our_economy/Is smaller government really better for the economy?
Conservatives chant that taxes and government "take money out of the economy" and we need to "cut and grow," meaning if government spending is cut way back the economy will grow as a result. Europe's conservatives are also forcing cuts in the things their governments do for regular people, claiming "austerity" will bring "confidence" that grows their economies.
How is this experiment working out? What are we learning about the effect on the larger economy when government is cut?
What Does Government Do?
Almost everything the government does is because it needs to be done. We need roads, bridges, schools and colleges, dams, courts, police and fire departments, water management, etc. (We can discuss the need for military spending another time.)
These are all needed and contribute to the functioning of the economy. So if government is cut back and doesnt do something that is needed, then how does it get done? Or does it just not get done?
orpupilofnature57
(15,472 posts)is to curb the excess of Monied interests " Thomas Jefferson
Motown_Johnny
(22,308 posts)That really should be enough for anyone.
dballance
(5,756 posts)Demand is what makes our economy grow. For there to be demand someone has to be spending and that means means people have to be working. It is simple math - first grade math.
I know it won't happen unless and until the GOP retakes the White House and then infrastructure might actually become a bigger priority than contraception. I have no hopes they'll ever get on board with going green or conservation.
We need to start spending heavily on infrastructure and repairing the infrastructure that is falling apart. How many more bridges have to collapse before we figure that out? We need to raise the capital gains taxes too.
But, of course, I'm not saying anything reasonable people don't already know.
Progressive dog
(6,915 posts)The austerity class are predators who do not believe in public good.
dkf
(37,305 posts)What happens when interest expense eats up more and more of our revenue?
starroute
(12,977 posts)At least in the US, interest rates for government bonds are effectively negative at the moment -- that is, less than the rate of inflation. According to Paul Krugman, US bonds are so in demand as a safe haven that we may even start to see interest rates that are literally negative. This means that right now it's possible for the government to borrow without interest becoming a burden in the future.
The other side of the equation is that all other forms of spending are plunging. State and local governments are slashing spending and private investors are just sitting on their money, with no incentive to start making anything new because there's no one to buy it. Further austerity for the poor and further tax cuts for the rich would only make that situation worse.
The only alternative is for government to get us out of the hole we're in. Right now, government is the investor of last resort, and government investment in jobs and infrastructure is the one thing that can keep us out of a tailspin and get us back on track. And thanks to those low, low interest rates, it's cheap and easy to do that now -- and then pay off the loans out of tax revenues as the economy recovers.
This is why I have no idea what you mean about investors deciding "they don't want to fund government spending." Are you suggesting that the people who invest in government bonds might decide they don't want to do that any more because -- why? Because the government would spend the money they lend it? That just doesn't make sense.
dkf
(37,305 posts)That won't always be the case. When things start reversing that is when funding will be more difficult and rates will start to go up. Then we pay the piper.
starroute
(12,977 posts)When things start reversing, tax revenues can replace borrowing. If you get your timing right, there is no piper to pay.
dkf
(37,305 posts)The United States has the least balanced maturity schedule of any major nation. Over 70 percent of its bonds mature within 5 years, compared with an average 49 percent for the 34 member countries in the OECD.
This leaves the country extremely vulnerable to any shift in investor sentiment at a time when its debt load has almost doubled in four years.
Marketable U.S. debt has risen to over $9 trillion, from around $5 trillion in late 2007, before the government increased spending to bail out struggling financial companies.
If sentiment were to shift quickly, it could send the cost of refinancing the country's bonds sharply higher. This would, in turn, eat into its budget and ability to meet long term obligations.
In a worst-case scenario the country might not be able to refinance at all.
http://mobile.reuters.com/article/idUSTRE7803QD20110901?irpc=932
hack89
(39,171 posts)large bloated state and town governments that overlap and provide redundant services. RI is a perfect example - I live on an island with three towns each with a population less than 20K. Each town has fewer than 2500 students and student populations are dropping. Yet we have three school districts with three separate organizations. State wide there are 38 separate school districts - there are many single school districts in America that have more students then all of RI. And it is so damned wasteful.
The second issue is municipal pensions. That is what killing cities in RI. The city of Providence is going broke. Several decades ago the corrupt mayor made a deal with the city unions that resulted in automatic annual increases in pension of 6 percent. 20 years of compounding later the city finds more and more of its budget going to.pensions. We are a high tax low income state so there is not enough new sources of revenue to pay for it all.
And third, there are unnecessary government workers. RI, for example, has a entire organization devoted to nuclear safety and regulation despite there being no reactors in the state. The bigger issue is too many administrators and not enough workers. They could collapse the organizational tree, consolidate departments and still retail all the skilled workers. However many of those management jobs are patronage plums that politicians want to keep to reward their supporters.
xchrom
(108,903 posts)libtodeath
(2,888 posts)is an expansion of the social safety net including medicare for all.
Government needs to enforce a truly level playing field where all have the opportunity to use their personal skills to the betterment of society.
How many brilliant and creative minds are trapped in the slavery of 1 and often 2 jobs just for the sake of barely getting by and hoping they dont get sick.
It is time the wealth that has been stolen over the last 30 years be returned to its rightful owners so we all can enjoy a just,fair and progressive society.