Austerity Won't Fix Economy Or Create Jobs

In the last few days, I've posted a couple of times about how the Republicans are much bigger spenders than Democrats and that President Obama has grown government spending less than any other modern president (see here and here). There is no doubt that is true, but I feel that I may have given the impression that I think austerity (less government spending) is what is needed in the United States right now. I don't.

I wrote those posts to expose the huge Republican lie that Democrats (and especially President Obama) were big spenders who were needlessly running up the deficit and national debt. The truth is that Republicans have been the bigger spenders -- increasing government spending by a larger percentage than any Democrats (especially the two who claimed to be most fiscally responsible -- Reagan and Bush II).

But while reducing government spending to control the deficit and national debt is a good thing in normal times with a healthy economy, it is exactly the wrong thing to do in a recession (and in spite of the growth in corporate profits and the bank accounts of the rich, this nation is still in a recession -- a recession that won't end without massive job creation). The question now is how do we create a massive number of jobs and put our economy back on the road to recovery.

The Republicans tell us the way to create jobs and a healthy economy is to cut taxes and severely cut government spending. This is commonly referred to as "austerity". But all we have to do is look at the European Union to know that austerity is the road to disaster, not recovery. The nation's there that have gone down the austerity path (like Great Britain, Spain, and Italy) or had austerity forced on them (like Greece and Portugal) have had their economies go into an even deeper recession.

The way out of a recession is through spending (like we did to emerge from the Great Depression). But it must be a purposeful and targeted spending. The kind of unrestrained spending done by Republicans (where most of the increased spending went for weapons, wars, and more tax cuts for the rich and subsidies for corporations) will do nothing but increase the deficit and national debt.

The new spending must do a couple of things -- put more money in the hands of the poor and the working class, and create more jobs. Increasing spending on social programs will put more money in the hands of people who are barely scraping by -- money they will spend because they need to spend it to live. This new spending will circulate through the economy, helping businesses and encouraging them to hire workers (because demand for goods and services is increased).

Job creation could be done by spending money to upgrade and repair our crumbling infrastructure, and if necessary, to create government work programs (like the WPA or CCC). These new workers will spend the money they earn since they are now working, and that money will also help businesses and encourage them to hire even more workers in the private sector (again, because demand is increased). As new jobs are created and money spent, this will spiral into improving the economy in general.

But won't this new spending increase the deficit and debt? Yes, but only in the short term. In the long term, as the new workers pay taxes (and businesses pay more taxes because of increased profits), the deficit and the debt will start to be paid down (and a small tax increase on the wealthiest Americans and corporations will also help to pay them down). This is fiscal responsibility -- a policy that will both create jobs and grow the economy. And it is the only way out of our jobless recession.

GOP "trickle-down" economics created this economic mess, and a new program of austerity will not make it better -- just worse. We must pump money into the economy at the lowest level and spur job creation (both government and private sector jobs) -- both of which will stimulate the economy and increase demand. It's the only real way to a healthy economy.