The GOP, Seinfeld, Woody Allen and the Case Against Austerity

Although applied economics is a rather complicated matter, it seems to me that an eighth-grader should be able to figure out that policies that reduce the number of folks out there with cash to buy stuff will hinder an economic recovery, not hasten one. I am referring to the unprecedented cuts on state and local levels that have rendered unemployed thousands of public sector workers such as policemen, teachers and firefighters. It is also true that even the unfairly obtuse might conclude that an unreasonable restriction of capital flow into the broad economy via cuts to federal funding (for infrastructure for instance) would cause shrinkage (like Jason Alexander in that Seinfeld episode). The whole notion of trying to make something expand by shrinking it is something right out of the Bizarro World episode. But considering that the economy is a strange and nebulous entity that may not respond logically to various stimuli, one might say that I can’t draw such conclusions. But here’s the thing: We know that an austerity agenda is not only inefficacious, but will indeed fail miserably because Britain, Greece and Spain very recently implemented austerity programs, and are NOW proving that it DOES NOT WORK!

Here’s a great analogy: In the Woody Allen film Annie Hall, Woody Allen and Diane Keaton are in line to see the movie The Sorrow and the Pity (about the Holocaust), and have the good luck to be standing behind some self-important egomaniac “pontificating” about Marshall McLuhan’s writing to impress some woman that’s apparently on a date with him. Woody is annoyed by the guy’s cockiness and thinks what he is saying about McLuhan is total crap. He confronts the blowhard and says that he has no idea what he is talking about. When the guy objects to this and cites his credentials to speak on McLuhan, Woody produces McLuhan (still alive at the time) on the spot to refute what the guy was saying. That’s sort of how you can view this. The GOP is the blowhard touting austerity and the EU is Woody Allen proving that austerity is bunk and will backfire during a recession or tepid recovery. The EU’s example is like being able to produce McLuhan himself. I realize that our government has the historical memory of a small winged insect, but it is happening right NOW!

The Republican Party would have you believe that the U.S. is broke and that our debt is at historical levels (never mind that they once said that deficits do not matter). When Keynes concluded that stimulus was the way out of a recession, Britain’s debt was essentially 100% of GDP and the U.S. debt would soon reach 112% of GDP after World War II. He was right then, and he remains right today. There is no denying that we should strive to reduce the debt to a lower level in the future, but to attempt to do so in times of economic hardship is ludicrous and will certainly cause another severe recession or even a depression. Again, this much is obvious from the EU’s example.

In the coming weeks, the U.S.will again be required to raise the debt ceiling to avoid default on its debts. The last time around (last year), the  House GOP led by freshmen Tea Partiers flirted with default by not initially voting to raise the debt ceiling. The result was a risk downgrade of government bonds by the rating agencies which made our debt more expensive to increase and to even maintain (since the U.S. was declared a higher risk to lend to). Republican House Speaker John Boehner has declared that the House Republican caucus will not vote to increase the debt ceiling unless the President will sign a bill with substantive spending cuts (austerity). Never mind the fact that those cuts won’t be to Big Oil subsidies or other forms of corporate welfare, or to defense spending or by limiting the tax cuts for the wealthy. The cuts that the GOP will champion will no doubt be to programs that assist those in need, such as unemployment benefits, food stamps, veteran’s benefits, Medicaid and Medicare. Some of the programs that the GOP would like to cut pump needed dollars into the tepid U.S. economy.

To ensure that our economy does not remain in the tank, we need to spend money, not cut spending. Of course the GOP, who unfortunately control the House, vehemently disagree. Characteristically, the Republicans deny what is directly in front of their collective noses. Even if we could produce McLuhan in the flesh (he’s dead now), they wouldn’t be convinced that their hubris is both misguided and flat out wrong.