By now, you need willful denial to miss the fact that the economy is in dreadful shape and showing no signs of meaningful improvement. For those inclined to explain away last month's terrible jobs report from the Labor Department as a case of statistical quirks, the latest snapshot of the employment picture released Friday essentially demolished that scenario: The paltry 54,000 jobs added to the economy in May was revised down to a mere 25,000. The June figure for net additions to American payrolls had been anticipated to come in around 125,000, but it landed at 18,000. The unemployment rate nudged up to 9.2 percent. Cue talk of double-dip recession, a Japan-style Lost Decade, and the grinding erosion of the traditional middle class American economic bargain, which used to promise a decent standard of living and the prospect of upward mobility for those willing to work. Not anymore.
You might reasonably conclude that such a troubling picture would provoke our elected leaders in Washington to remake their national priorities, lifting job creation and relief for those struggling to the top spots.
You would be wrong. What we are getting instead is a sustained lecture on the need for American society to "live within our means." This is the phrase of the moment in Washington, where those in power are either debating what vital pieces of the remaining social safety net to slash (Medicaid, Social Security) in the name of closing the federal budget deficit or pontificating about their unwillingness to raise taxes on the wealthy, the only strata of American life that has enjoyed meaningful progress over the last dozen years.
Living within our means: Who could possibly be against such a sensible sounding thing? As opposed to what, breaking out the credit cards to finance a Gatsby-like bacchanal? But given how this mantra has become the guiding force in the policy realm, it seems worth bearing in mind how we wound up living beyond our means in the first place.
The short answer: Under the leadership of President George W. Bush, we ran a couple of highly expensive, largely disastrous wars in Afghanistan and Iraq, and we handed out huge tax cuts to people with multiple residences and seven-figure annual incomes. Together, the two wars and the Bush-era tax cuts are on track to comprise almost half of the $20 trillion in debt that are anticipated to be on the nation's books in 2019, according to an analysis by the Center on Budget and Policy Priorities in Washington.
Then, we suffered the worst economic downturn since the Great Depression, an event caused in large part by the reckless gambling of people who bring home the biggest salaries from their jobs on Wall Street. The recession exacerbated federal budget deficits by significantly increasing demand for support programs such as food stamps and unemployment insurance -- in many households, the only thing keeping people from homeless shelters and food banks.
And now that living beyond our means has gone out of fashion, how do we propose to get back within them? In the deal the Obama White House has reportedly been pursuing, by slashing spending by $2 trillion in exchange for $400 billion in tax increases on wealthy households. In an interesting bit of analysis, Ezra Klein notes that this deficit reduction recipe includes 83 percent of spending cuts and 17 percent tax increases. Presidents Clinton, George H.W. Bush and Reagan all leaned much more heavily on tax increases in their own plans to roll back budget deficits, Klein finds.
Cutting spending dramatically now would be terrible economic policy, exacerbating the weakness of the economy by tamping down spending power and further depriving employers of reasons to hire. And cutting spending by taking a big bite out of Medicaid and Social Security would be terrible policy combined with grotesque social injustice: Those drawing on Medicaid -- the health insurance program for the poor -- are the most vulnerable Americans, the people at the bottom of the economic ladder. These are the people who shared least in the spoils of the speculative investment bubbles in technology and housing that produced huge gains at the top; people who have since absorbed the worst shocks of the Great Recession. Moreover, Medicaid has been highly effective at providing critical medical care for people who would otherwise go without, according to a landmark study released this week.
Social Security was the ultimate support system to emerge from the Depression, its very existence a recognition of the reality that times can be turbulent, necessitating a public role in maintaining a reasonable standard of living for retirees. If the process of balancing the books in the wake of the Great Recession comes at the expense of the greatest legacy of the New Deal, that would be perverse indeed.
Living within our means is an excellent goal, but one that should be achieved by enhancing the means through an aggressive strategy of job creation, and not by downgrading the way of living for the majority of ordinary people.
The downside of the approach now being pursued only got starker on Friday, as the government delivered another pile of ugly data lending credence to the fact that the economy is weak. These are days to be strengthening the social safety net and investing aggressively in job creation, not times to be balancing the budget on the backs of people who failed to get a slice of the nation's speculative bender and instead have wound up with an outsized share of the pain.
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