The budget talks continue to grind on this week, with the terms of the debate lining up almost exactly where they’ve been for the last five years. Republicans want spending cuts, and Democrats want tax increases. Sen. Patty Murray, the Democrats’ lead negotiator, has been holding the line on preventing cuts to key social insurance programs, but even she has internalized the austerian line that any sequester replacement must be “paid for” by cuts to something else:
Ms. Murray wrote…on Sunday that the budget panel should work to replace across-the-board budget cuts, known as sequestration, with a mix of spending cuts and revenue increases accomplished by “closing a few wasteful loopholes” in the tax code.
It may be that closing these loopholes would be a good idea in the long term. But it is not even close to the most important economic problem for the country, as shown by a report released Friday by the IMF detailing the long-term damage that continuing high unemployment is doing to the U.S. economy. As this comes at the end of a long line of developments that have absolutely destroyed the intellectual support for austerity, in a sane world this would completely upend these negotiations. Lawmakers ought to be scrambling over each other to rescue the economy, starting with a quick repeal of the sequester. But because Washington is incapable of breaking out of its self-imposed austerity cage, very likely nothing will change.
The IMF report shows what happens to an economy that suffers prolonged high unemployment and corresponding weak growth. Due to weak sales, businesses skimp on investment and R&D, and fewer new businesses are started. In addition, the long-term unemployed are eventually seen as unemployable, creating a semi-permanent underclass. Overall, this has reduced potential output by about 7 percent, or roughly a trillion dollars per year.
The sick irony here is that the austerians responsible for most of this damage — who demanded that unemployment be ignored in favor of reducing the deficit — have bleated constantly about the moral necessity of deficit reduction. “We’re stealing from future generations!” was the refrain. This never made sense, but by reducing America’s long-run economic potential, the austerians have made future Americans less wealthy by, depending on when/if full employment is ever reached again, tens of trillions of dollars.
In any case, word is Republican ultra-conservative groups are mobilizing against any tax increases, or reductions to the sequester, and I can guarantee that if this IMF report is even noticed on the right, it will be immediately dismissed as liberal propaganda:
In the absence of any broader deficit-reduction measures, many conservatives want to preserve the sequester as the only real cut of significance they’ve been able to achieve…”To us a bad deal is a deal that increases spending or taxes,” said Dean Clancy, vice president of public policy at FreedomWorks, which advocates for low taxes and spending cuts.
The real tragedy is that the Democrats will probably ignore the report, too, if history is any guide. So far, the party is all trying to raise revenue somehow. I continue to think someone should try to split the Republican agenda of low taxes and low spending by offering up some big old tax cuts coupled to sequester easing, but the appeal of being considered Very Serious is probably too strong.