The stark reality is the economy is still in trouble and Americans are still hurting. The economy contracted last quarter, even before Americans got hit with the end of the payroll tax holiday, which will take $1,000 out of the typical family’s annual paycheck. The Congressional Budget Office projects that growth will inch along at about 1.5 percent this year. That translates into continued mass unemployment — with more than 20 million people in need of full-time work — and falling wages. The richest 1 percent captured an unimaginable 121 percent of all income growth in 2009 and 2010, coming out of the Great Recession. They pocketed all of the growth in income, while 99 percent of Americans actually lost ground. That trend is likely to get worse rather than better.
Federal Reserve Governor Janet L. Yellen described the tragic human costs of widespread, long-term unemployment in an important speech this month. Families lose their homes; divorce and depression rise; children are scarred; skills are lost. A young generation is leaving school to sit on the couch.
Yet most of Washington — from the newly reelected Democratic president to the self-described insurgent Tea Party Republicans — is ignoring this reality to focus on cutting deficits.
The Republican Congress seems intent on letting the “sequester” take place — the idiotic across the board cuts that were explicitly designed to be anathema to both parties. Senate Democrats call not for repealing these cuts, but for “paying for” delaying them for a few more months.
Why this fixation? Deficits aren’t careering out of control. In fact, as the Congressional Budget Office reports, in relation to the economy, the deficit has fallen faster over the past three years than at any time since the demobilization after World War II. Calls for cutting Medicare benefits ignore the reality that the slowing rise in Medicare costs has already cut about $500 billion from its projected costs over 10 years compared to estimates made two years ago.
In fact, the too-rapid and premature decline in deficits in a weak economy is hindering any recovery, as Yellen noted.
Sadly, none of the supposed free-market ideologues in Congress are listening to the markets. With interest rates near zero, investors are sending the United States a flashing green light: Go borrow money to rebuild our decrepit and deteriorating infrastructure, investments that would put people back to work and make the country far more competitive.
So why this obsession with deficits and debt? There are many factors, but central to it is a widespread elite consensus that this crisis provides a unique opportunity to “fix” — exact benefit cuts from — Social Security, Medicare and Medicaid, despite the opposition of broad majorities across the political spectrum.
No one has done more to propagate and consolidate this consensus than the Wall Street billionaire Pete Peterson, who has been railing about the threat posed by the “paid vacation” provided by Social Security and Medicare for over three decades. As a special feature in this week’s Nation (which I edit) and a valuable report by the Center for Media and Democracy demonstrate, Peterson has devoted nearly half a billion dollars to this quest since 2008.
Only last week, Fix the Debt, one of the many groups funded by Peterson, trotted out its co-founders, Erskine Bowles and Alan Simpson, to lay out yet another plan. Echoing Peterson’s views, they called for cuts in Medicare and Social Security, tax reform that would lower top rates but close loopholes (including middle-class tax breaks such as that for employer-based health care), and curbs on all other government spending.
This elite consensus ignores how we got into the fix we are in. The deficit was under 2 percent of gross domestic product in 2007 and the debt under 40 percent of GDP when Wall Street’s wilding blew up the housing bubble and drove the economy into the Great Recession. Wall Street got bailed out, but the deficit soared to 11 percent of GDP and Americans lost nearly 40 percent of their wealth. You’d think anyone so fixated on avoiding another Pearl Harbor moment would focus on making certain Wall Street was properly shackled, and the too-big-to-fail banks broken up.
But the elite bipartisan consensus is focused on sending the bill for Wall Street’s mess to an already battered middle class, by weakening the basic pillars of a family’s economic security — Social Security, Medicare and Medicaid. And they are a lot closer than anyone thinks. The sequester is just the first of a series of austerity bombs that the Republican Congress will use to extort cuts in these benefits.
It’s time to stop such extortionists from holding our country’s economic future hostage.
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