The growing federal deficit has some conservative Democrats considering spending cuts at a time when federal spending is what’s needed to boost a sinking economic ship.
Officials are estimating that shrinking tax returns and already increased spending on food stamps and unemployment benefits and the massive bailout of the financial system could push the deficit to $1.4 trillion, or about 10% of the economy, according to the Washington Post.
That has some Democrats considering restraints on the growth of Medicare and Social Security and “tough new budget rules to prevent future deficits from ballooning,” the Post said.
“Congressional aides said one possibility would be a return to the stringent budget rules of the late-1980s, when overspending automatically triggered across-the-board cuts to federal programs, a process known as ‘sequestering.’”
Attacking the deficit now by cutting spending would be disastrous, as the economist Paul Krugman has written. In a December column in the New York Times, he said that the shrinking economy means that “there’s no trade-off between what’s good in the short run and what’s good for the long run; strong fiscal expansion would actually enhance the economy’s long-run prospects.”
Austerity, however, is likely to have the opposite effect. That’s “exactly what happened in two important episodes in history,” one in the US and the other in Japan, Krugman wrote. In 1937 in the United States, after four years of aggressive government spending on infrastructure that ameliorated the impact of the Depression, Franklin Roosevelt cut government spending, sending the American economy back into a tailspin. A recession followed Japan’s disastrous decision during the mid-1990s, when its “government tried to balance its budget, cutting spending and raising taxes.”
In the United States, it took massive government spending caused by the buildup to World War II—and then the war itself—to resuscitate the American economy.
The lesson? The government has to spend money, has to prime the economic pump to protect and create jobs. That means spending money on healthcare and education and rebuilding a frayed social safety net (unemployment benefits, food stamps, antipoverty programs).
And it means infrastructure.
But we have to be careful about the projects we choose, as the economist Dean Baker wrote in January in the Guardian (UK). Choosing “shovel-ready” projects is important, but some projects “will actually be harmful to the environment and the economy over the long-term.”
Highway money, for instance, should be targeted to repairs and modernization of existing bridges and roads rather than building miles of new roads. And there needs to be significant money for mass transit—not just trains and buses, but trolley and so-called rapid-transit systems, as well.
“We should not be making it easier for people to live long distances from their jobs, so that they have lengthy commutes each day. This would directly counteract efforts in other areas to reduce energy consumption and greenhouse gas emissions,” Baker wrote.
It doesn’t make sense to spend money retrofitting buildings, so that we use less energy heating and cooling them, if we’re also spending money in ways that encourage people to use more gasoline driving to and from work every day. In the same vein, it doesn’t make sense to pay money to develop more fuel efficient cars so that they can go further on each gallon of gas, and then go out spend tens of billions of dollars building highways that encourage people to drive more.
And we need a massive investment in new technologies, along the line of the stimulus plan offered in the fall by Green Jobs for America Campaign, a coalition of environmental and labor groups. The organization outlined a $100 billion program that would include a combination of tax credits, loan guarantees and public investment in environmental technology it says will create about 2 million jobs over the next two years.
The program, outlined in a report written by the Political Economy Research Institute at the University of Massachusetts-Amherst and the Center for American Progress, calls for investing in new power sources, including wind, solar power and “next-generation biofuels.” It also recommends “expanding mass transit and freight rail,” “retrofitting buildings to improve energy efficiency” and “constructing ‘smart’ electrical grid transmission systems.”
The $100 billion program, the report says, “could be paid for with proceeds from auctions of carbon permits under a greenhouse gas cap-and-trade program.”
The environmental benefits of such a program seem obvious. We would burn less fuel, spewing less carbon into this atmosphere. And we could spare our coastlines and the Alaska National Wildlife Refuge from the ravages of oil drilling.
But the benefits would go well beyond the positive impact on the environment. According to the report, investing in green technologies would create a broad range of employment opportunities, especially in construction and manufacturing work.
It also would lower energy costs for public and private buildings, making more money available for more productive endeavors.
The public infrastructure portion of the program—upgrades to public buildings, public transportation and the electrical grid—could be enacted quickly, the report said.
Basically, we need to be smart with our money so that we can create the maximum number of jobs without further damaging our environment. As Baker says, “We should not be making it easier for people to live long distances from their jobs, so that they have lengthy commutes each day. This would directly counteract efforts in other areas to reduce energy consumption and greenhouse gas emissions.”
Hank Kalet is a poet and the online editor for The Princeton Packet newspaper group. Email grassroots@pacpub.com. See his blog, Channel Surfing, at www.kaletblog.com.
From The Progressive Populist, Feb. 1, 2009
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