Saturday, March 26, 2011

Austerity Repackaged

Leave it to a Fox News analyst Stuart Varney (video, from Crooks and Liars, below) to say with words and facial expression what so many Republican politicians would state but for fear of political repercussion.

With Governor Snyder's signature Michigan, with an unemployment rate well above the national average, will become, according to Fox News' Megyn Kelly in the piece with Varney, one of the first states since the 1950s to offer state-paid unemployment benefits for fewer than 26 weeks. In this portion of the transcript, Varney cites the motive of austerity:

Michigan is going to twenty weeks and I gotta tell you, Florida is considering moving it down to twelve weeks. That would be a big crack in the established standard. It's all a response to the fact that you can't afford it. These state funded .. in that state, all of them have run out of money.

But successfully summoning considerable courage, Varney responds another question from Kelly by happily declaring

This is austerity. This is in cuts and services and benefits across the board. It's happening in state after state after state. Austerity is beginning to hit home now. The real story is how will the voters respond to this? We don't know this, but austerity is here. It bites, it hurts and it's happening now.

It bites, it hurts and it's happening now. Exclaiming with a genuine and unmistakable smile, Varney is free to exult what politicos cannot. The company line (GOP, Blue Dog Democrats, mainstream media)- that gee, we wish we didn't have to do it, but we're just so doggone broke- makes little more sense. Paul Krugman explained this week

So jobs now, deficits later was and is the right strategy. Unfortunately, it’s a strategy that has been abandoned in the face of phantom risks and delusional hopes. On one side, we’re constantly told that if we don’t slash spending immediately we’ll end up just like Greece, unable to borrow except at exorbitant interest rates. On the other, we’re told not to worry about the impact of spending cuts on jobs because fiscal austerity will actually create jobs by raising confidence.

How’s that story working out so far?

Self-styled deficit hawks have been crying wolf over U.S. interest rates more or less continuously since the financial crisis began to ease, taking every uptick in rates as a sign that markets were turning on America. But the truth is that rates have fluctuated, not with debt fears, but with rising and falling hope for economic recovery. And with full recovery still seeming very distant, rates are lower now than they were two years ago.

But couldn’t America still end up like Greece? Yes, of course. If investors decide that we’re a banana republic whose politicians can’t or won’t come to grips with long-term problems, they will indeed stop buying our debt. But that’s not a prospect that hinges, one way or another, on whether we punish ourselves with short-run spending cuts.

Just ask the Irish, whose government — having taken on an unsustainable debt burden by trying to bail out runaway banks — tried to reassure markets by imposing savage austerity measures on ordinary citizens. The same people urging spending cuts on America cheered. “Ireland offers an admirable lesson in fiscal responsibility,” declared Alan Reynolds of the Cato Institute, who said that the spending cuts had removed fears over Irish solvency and predicted rapid economic recovery.
That was in June 2009. Since then, the interest rate on Irish debt has doubled; Ireland’s unemployment rate now stands at 13.5 percent.

And then there’s the British experience. Like America, Britain is still perceived as solvent by financial markets, giving it room to pursue a strategy of jobs first, deficits later. But the government of Prime Minister David Cameron chose instead to move to immediate, unforced austerity, in the belief that private spending would more than make up for the government’s pullback. As I like to put it, the Cameron plan was based on belief that the confidence fairy would make everything all right.
But she hasn’t: British growth has stalled, and the government has marked up its deficit projections as a result.

It's not working in Ireland, it's not working in Great Britain, and there never has been much reason to believe it would work in the U.S.A. And in the federal government and in most states- as in Michigan, where the tax on large businesses has been cut- it has little to do with austerity. But the line "it's going to be painful but you deserve it" would have been, in conservative nomenclature, so politically incorrect.

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