Matters may get worse. The austerity advocated by some Republicans will lead to higher unemployment, which will lead to lower wages as workers compete for jobs. Less growth will mean lower state and local tax revenue, leading to cutbacks in services important to most Americans (including the jobs of teachers, police officers and firefighters). It will force further increases in tuition — data published this month show that the average tuition for a four-year public university climbed 15 percent between 2008 and 2010, while most Americans’ incomes and wealth were falling. This will lead to more student debt, more profits for bankers — but more pain at the bottom and middle. Some, seeing the consequences of their parents’ debts, won’t be willing to take on the levels of debt necessary to get a college education, condemning them to a life of lower wages. Even in the middle, incomes have been doing miserably; for male workers, inflation-adjusted median incomes are lower today than they were in 1968. Opportunity in America — already the country with the least equality of opportunity among the world’s advanced nations, where a child’s prospects depend more on the income and education of his parents then even in ossified Europe — will decline still further.
If we want recovery, there is no choice but to rely on fiscal policy. Fortunately, well-designed spending can lead simultaneously to more employment, growth and equality. Further investments in education, especially aimed at the poor and middle, from preschool to Pell Grants, would stimulate the economy, improve opportunity and increase growth. Spending a fraction of the money the federal government gave to the banks to help underwater homeowners — or extending unemployment benefits for those who have long searched but failed to find a job — would simultaneously ease the burden of those suffering from the recession and help bring the recession to an end. This higher growth would, in turn, lead to higher tax revenue, improving our fiscal position. Plenty of investments would pay for themselves.