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Austerity's Big Winners Prove To Be Wall Street And The Wealthy

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Austerity advocates, like Rep. Paul Ryan, argue their proposals will boost the economy.
Austerity advocates, like Rep. Paul Ryan, argue their proposals will boost the economy.

This article is part of a Huffington Post series on the global impact of austerity -- "A Thousand Cuts" -- from affordable housing funds lost in San Francisco to increasing class sizes in New York, food inspector cuts in Canada, disability benefits taken away in the United Kingdom, decimation of France's solar industry, and more. Click here for information on how you can help people affected by these measures.

WASHINGTON -- The poor and middle classes have shouldered by far the heaviest burdens of the global political obsession with austerity policies over the past three years. In the United States, budget cuts have forced states to reduce education, public transportation, affordable housing and other social services. In Europe, welfare cuts have driven some severely disabled individuals to fear for their lives.

But the austerity game also has winners. Cutting or eliminating government programs that benefit the less advantaged has long been an ideological goal of conservatives. Doing so also generates a tidy windfall for the corporate class, as government services are privatized and savings from austerity pay for tax cuts for the wealthiest citizens.

U.S. financial interests that stand to gain from Medicare, Medicaid and Social Security cutbacks "have been the core of the big con," the "propaganda," that those programs are in crisis and must be slashed, said James Galbraith, an economist at the University of Texas.

Advocates of austerity measures have sold their proposals as a means to improve the economy.

"It is an error to think that fiscal austerity is a threat to growth and job creation," declared European Central Bank President Jean-Claude Trichet in July 2010.

"We're going to cut spending to get the debt down, help create jobs and prosperity, and reform government programs," vowed Rep. Paul Ryan (R-Wis.), chairman of the House Budget Committee, in a February 2011 commentary for Real Clear Politics. Ryan would later declare that his budget plan, with far more aggressive austerity measures than those ultimately enacted by Congress -- including $6.2 trillion in spending cuts -- would have spurred $1.5 trillion in economic growth and created 2.5 million jobs.

As for the 2010 Simpson-Bowles deficit reduction plan, it is often described by Beltway insiders as a "centrist" proposal that could "bring the country together" and improve the economy. In fact, Simpson-Bowles is yet another austerity program that would cut Medicare and Social Security while securing tax breaks for corporations and the well-off, according to an analysis by the Center on Budget and Policy Priorities.

Erskine Bowles, co-chairman of the bipartisan commission that worked on the plan, is a director at Morgan Stanley, the sixth-largest American bank and a financial institution for which the United States made huge commitments to help it weather the economic downturn. Morgan Stanley took $10 billion in bailout funds under the Troubled Asset Relief Program and received more than $100 billion a day in cheap loans from the Federal Reserve at the height of the past financial crisis. For weeks, Morgan Stanley borrowed more money from the Fed than the company's stock market value.

That solicitude for the profits of big corporations shows up in Simpson-Bowles too. The plan offers multiple corporate tax reform proposals, but one, which calls for shifting to a so-called territorial tax system, would be especially advantageous to Morgan Stanley and other Wall Street banks. It would allow U.S. companies to permanently avoid paying U.S. taxes on overseas income, including money stashed in offshore tax havens like the Cayman Islands. According to a 2008 report by the Government Accountability Office, Morgan Stanley operates 273 sub-companies headquartered in such tax havens.

While Social Security advocates have attacked the plan, the Business Roundtable, a lobbying group for corporate CEOs, has praised Simpson-Bowles. So has Peter Peterson, who served as Richard Nixon's commerce secretary before founding Blackstone Group, a major private equity firm. Peterson has long advocated cuts to Social Security and Medicare, and he started a think tank devoted to federal debt reduction in 2008.

"I'm a great fan of Erskine Bowles and Alan Simpson," Peterson told Bloomberg in 2011. "I think they're American heroes."

As many economists predicted, however, the austerity policies implemented after the financial crisis have proved to be a losing proposition for the global economy. The strong economic growth that austerity advocates predicted has not materialized, with the United States showing only anemic improvements, and European countries sliding back into devastating recessions.

At the same time, corporate profits in the financial industry remain above even the levels reached at the height of the housing bubble, according to Commerce Department data. And elites on both sides of the Atlantic have secured generous tax breaks, made possible in part by cuts to social services.

In the United States, President George W. Bush's tax breaks for the wealthiest citizens were extended, while unemployment benefits and even food stamps have gone on the chopping block.

This tradeoff is even more apparent at the state level. In 2010, New Jersey Gov. Chris Christie (R) opted not to make the $3 billion annual contribution to the state workers' pension fund, instead securing $1 billion in tax cuts for the state's better-off residents. Wisconsin Gov. Scott Walker (R) has similarly proposed budgets that provide tax breaks for corporations and the rich while demanding pay and benefit cuts for middle-class state workers.

"Austerity policies are literally a redistribution from the bottom of the income spectrum to the top," said Dorian Warren, a professor of political science at Columbia University and a fellow at the Roosevelt Institute, an economic policy think tank. "In Wisconsin, both wealthy people and businesses got tax breaks, while middle-class and working-class employees of the state essentially got crushed."

Warren emphasized that there are political dimensions to the austerity push. Efforts to curb collective bargaining rights -- and thus pay and benefits -- for state employees cut to the heart of the American labor movement. With only 7 percent of the private-sector workforce unionized, public-sector unions are a critical component of labor's political influence and an important bloc in Democratic Party operations.

Governments in Europe, most notably the United Kingdom, have also pursued tax cuts for the rich while imposing austerity measures on the working classes. And the European financier class has benefited even more directly than their American counterparts from these budgets.

Every time the European Union has reached a crisis point on the debt carried by Greece or Spain, EU leaders, especially German Chancellor Angela Merkel, have come to the rescue with bailout funds. That money goes to the banks that own Greek and Spanish debt, whose holdings would take a hit if either country were unable to repay. But the bailout comes with harsh austerity requirements intended to encourage budgetary discipline, so it's ordinary citizens who end up taking the hit. The most vulnerable populations are harmed by the bailouts, while the well-paid financial professionals who made the deals to finance Greek and Spanish deficits in the first place continue profiting handsomely.

"Imposing pain on Greeks is ... a blood price for the ever-repeated bailouts whose actual beneficiaries are said to be Greeks, but are in fact French and German bankers," said Galbraith.

The consequences have been dire. In Greece, HIV/AIDS infections have soared 1,500 percent since the end of 2010, as public health programs and anti-drug campaigns have been decimated. Unemployment has risen above 20 percent in both Greece and Spain.

Yet none of this has slowed the bipartisan American political movement for greater austerity. The U.S. budget will reach the so-called fiscal cliff at the end of the year, when a number of tax breaks expire and harsh budget cuts under the 2011 debt ceiling deal kick in. Republicans in Congress are calling for additional slashing of federal spending, and they have been joined by Wall Street Democrats. Former Rep. Harold Ford Jr. (D-Tenn.), now a managing director at Morgan Stanley who supported the American bank bailout, advocated for austerity during a June appearance on NBC's "Meet the Press."

"Obviously, we hope that things go well there in Greece," Ford said. "And when I say, 'well,' I mean that the austerity camp wins out."

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