Our austerity addiction will destroy us
The coronavirus outbreak demands a huge, costly intervention, but deficit hawks can’t kick their means-testing habit
There are no atheists in foxholes, and there are no deficit hawks in an economic meltdown—or at least there shouldn’t be.
With the worst epidemic in a century unfolding and the prospect of a depression looming, decisive action by the federal government is urgent. Yet, Washington remains as paralyzed as ever, with politicians in Congress inexplicably agonizing over how to pay for it.
When it came to financial markets, the response was swift— the Fed injected $1.5 trillion to tackle last week’s crash—but efforts to bail out Main Street have stalled.
Given that roughly two-thirds of Americans can’t afford a $500 emergency, the unprecedented economic disruption brought by the coronavirus pandemic threatens to leave tens of millions in crisis. Bars and restaurants are shuttered. Unemployment claims are soaring. Rent is almost due.
While most politicians agree some sort of relief is needed for working Americans facing layoffs, evictions and food insecurity, there are major fissures about what form it should take. And the debate isn’t breaking down neatly along party lines.
Republican Sen. Mitt Romney once characterized half of Americans as a bunch of lazy moochers “who believe that they are entitled to health care, to food, to housing, to you-name-it.” Now, he’s proposing a one-time $1,000 check to all Americans. Sen. Tom Cotton has called for similar measures—the Trump Administration, too.
House Speaker Nancy Pelosi has said she’s fine with a cash payout, but she’s insisting it should be “means tested,” which is wonk speak for distributing funds based on income. Pelosi’s relatively conservative position prompted a lot of talk about Democrats being outflanked from the left, but the final proposal coming out of the Republican-controlled Senate was actually worse.
It went one step further with a sort of reverse means testing on the lower end: people making under $2,500 a month would get half as much as everyone else.
Progressives like Rep. Maxine Waters favor making the policy universal and unconditional. They argue that means testing would add an extra layer of bureaucracy that is logistically impractical at a time when most people, including government employees, are having to work from home.
Means testing would all be based on past tax returns, which wouldn’t take into account recent job loss. Collecting and verifying income information right now would be a nightmare. Our existing infrastructure to handle unemployment claims is already overloaded, with websites crashing across the country.
The timely distribution of funds to ordinary people to head off a cascading series of economic failures outweighs the negligible risk of inadvertently giving money to someone who doesn’t actually need it. Nevertheless, politicians in both parties have a fetish for means testing that they revert to reflexively even when it makes no sense.
It’s tempting to blame this all on a deeply ingrained “rugged individualism,” but these attitudes—at least among the general public—are somewhat fungible in a time of crisis.
When it comes to welfare, Americans tend to lump people into groups that are “deserving” and “undeserving,” That mentality is more prone to change in a situation when nearly everyone needs help of some kind.
Public support for a range of interventions, like taxpayer-funded subsidized paid sick leave, basic incomes and free medical care, shifted by large margins almost overnight, according polls conducted by Data for Progress.
Many conservatives have no problem rationalizing some kind of simple cash payout during the outbreak. For instance, Daily Wire blogger Matt Walsh argued that it was functionally the same as a tax rebate.
One would think Democratic leaders like Pelosi would be more flexible than die-hard reactionaries like Walsh, but the dogma of “fiscal responsibility” is a secular religion, and there’s no truer a believer than the Madame Speaker.
Like many senior Democrats, she’s socially liberal, but fiscally conservative. Pelosi was a longtime friend of Republican billionaire Pete Peterson, whom she eulogized as a “national hero” when he died at the age of 91.
Peterson pumped nearly half a billion dollars into a highly influential think tank dedicated to balancing the federal budget through cuts to social spending. The foundation provides intellectual ammunition for deficit hawks in both parties to justify for austerity. Peterson’s influence on Pelosi could be seen last year during her fight with progressives over the PAYGO rule, which requires all bills to be “deficit neutral.”
Broad differences may exist between the two parties on some issues, but an austerity mindset forms the mainstream of both. “Fiscal responsibility” has gradually congealed into common sense over the past 75 years or so since the last big crisis that created our welfare state.
The Great Depression challenged the free market fundamentalism that reigned in the Roaring Twenties, and the New Deal was the result. The new conventional wisdom held that the government should play a stronger role in creating demand. Based on the theories of John Maynard Keynes, this view held that deficit spending could be beneficial in normal times and was absolutely necessary in crisis.
This paradigm held firm through the end of the Eisenhower Administration, but Goldwater conservatives began chipping away at it in the 1960s. The rightwing counterrevolution continued with the rise of the Chicago School of economics and the Koch Brothers-funded libertarian movement, ultimately culminating in the election of Ronald Reagan.
Neoliberal austerity has been the ruling orthodoxy in every successive administration since, from the welfare reforms of Bill Clinton to the further shredding of the social safety net under Donald Trump.
But the preoccupation with belt-tightening is selective. Neither party bats an eyelash at bloated military budgets that include massive boondoggles like the F-35 program, but when it comes to something that would stimulate the economy and benefit millions of people, like student debt forgiveness, then suddenly is asking how we are going to pay for it. (Both the F-35 program and student debt forgiveness cost around $1.5 trillion).
Former Vice President Joe Biden and Pelosi were instrumental in extending the Bush Tax Cuts under Obama, which exploded the national debt by $4.1 trillion, yet Biden was one of the most vocal Democratic deficit hawks during his tenure in the Senate. As a legislator, he advocated cuts to social security and Medicare.
Sen. Bernie Sanders represents a return to the Keynesian paradigm that mitigated the worst harms of the Great Depression, while Biden, the likely nominee, embodies Washington’s entrenched attachment to austerity.
In one of his few televised addresses after the crisis, Biden signaled his priorities, using conservative buzzwords like “job creators,” while Bernie’s focus was on the most vulnerable, including the elderly, homeless and the incarcerated. Biden has spoken in military terms, referring to the outbreak as a “war,” but Bernie is actually treating it like one.
In World War II, the government nationalized hundreds of companies to rapidly ramp up war production. Bernie’s plan calls for invoking the 1950 Defense Production Act to shore up stocks of essential medical supplies.
Countries like China and South Korea don’t share the United States’ peculiar hang-ups about government intervention or deficits. They have successfully flattened the curve while we’re just getting started. The greatest anxiety of politicians—our loss of status as the dominant world superpower—might just come to pass as a result of this crisis.
Our neoliberal addiction to austerity and pathological need to quibble over nickels and dimes will prevent us from acting fast enough, and in all likelihood it will push us to cut off relief funding far too early.
For years, the deficit hawks warned that America’s doom would be spending too much, but ironically, we might just be done in by spending too little.