Austerity Now

A couple months ago, I wrote a post titled The Coming Liberal Austerity Program. Well, it’s not just coming anymore. It’s here.

In response to the Republican victory in last week’s special election in Massachusetts and the deficit paranoia that has gripped the right wing and orthodox economists, President Obama announced yesterday that he will pursue a three year spending freeze in domestic discretionary federal spending, excluding of course “security-related” spending on the military even though it accounts for over 50% of all discretionary spending. We have to “fund the troops,” after all. Those of you with long memories may recall that candidate Obama appropriately rejected John McCain’s profoundly stupid call for a spending freeze during the 2008 campaign, but then again this administration doesn’t seem willing to make good on campaign promises that don’t involve placating bankers or dropping more bombs on people in the Middle East.

Social Security, Medicare, and Medicaid are also excluded from cuts, but as an anonymous administration official noted, “by helping to create a new atmosphere of fiscal discipline, it can actually also feed into debates over other components of the budget.” The long-term implications of this statement are obvious, and disturbing. After cutting education, nutrition, national parks, and God knows what else (but probably not the military), the plan is to move against those nasty “entitlement” programs that the political class and the right hate so much. It took a Democrat to destroy welfare, and it seems as if another Democrat is preparing the groundwork for a final offensive against the New Deal. And to think that just last year, the media had crowned BHO as the new FDR. Psyche!

But most troubling in the shorter term is the possibility that this freeze may also apply to federal aid to state and local governments, which to date has prevented the recession from turning into a full-blown depression. The early reports in the press are not clear on this point (if anyone has some more information on this, please share it). The fiscal assistance that states received from Washington under President Obama’s stimulus package is scheduled to end on December 31, 2010. In the absence of further relief, states would be forced to make painful budget cuts that the Center for Budget and Policy Priorities estimates “will take nearly a full percentage point off the Gross Domestic Product” and “cost the economy 900,000 jobs” on top of the millions of jobs that have already been lost during the course of the recession. I don’t want to see what kind of social catastrophe would result from the implosion of state and local governments across the country. The thought that this could potentially happen, and soon, is chilling.

As Paul Krugman said on his blog, “this looks like pure disaster,” not just economically but politically as well. You can bet that Republicans and “moderates” will just keep calling for more cuts, while the Democratic base drifts further into demoralization. I can’t see how a move toward austerity will significantly help the Democrats’ electoral chances this fall. If anything, it will provide further encouragement to Democratic voters to stay home. Ideologically, it provides validation for the conservative economic paradigm at a time when the last shovelfuls of dirt should be falling on its grave.

So after one year of the Obama administration, the picture is clear. If you are Wall Street, the military, the health insurance or pharmaceutical industries, a conservative Democrat, or even a Republican, the administration will bend over backwards to accommodate you. Everyone else gets a kick in the teeth. One can only hope that at least some of the millions who supported Obama and are becoming disillusioned with his administration will become radicalized in some fashion. If not, this country’s politics is likely to become even uglier than it already is.


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