Part 2 - I’ll Promise You A Rose Garden…

Yesterday I wrote about how we have to balance the budget, spend wisely and not use an ax, but a scapula to cut the budget. Today I want to write about how austerity programs worked in other countries around the world and past administrations.

In an opinion article in the CT News Junkie by Susan Bigelow, she wrote…

All that the plans of indiscriminate budget cutters will do is drive us deeper into economic pain. The economic crisis of 2008 was a terrible storm, and we’re still trying to rebuild. Cutting back on government spending now would add to our burdens, not relieve them.

If you want proof, take a look across the water. European nations, faced with an unprecedented fiscal crisis, decided to embrace austerity. Their economic implosion is being felt here, and it doesn’t look like it’s going to get better any time soon. The United Kingdom recently fell back into recession. Budget cuts are clearly not working there.

Austerity seems like a great idea at first. After all, that’s what we do when times are tough, right? We tighten our belts. But government isn’t like a single household or small business. Governments interact in complex ways with the economy and society, and cutting back indiscriminately can be a disaster.

This should be obvious: government jobs aren’t a special category of job that somehow is walled off from the rest of the economy. Cutting workers leads to unemployment. Slashing salaries means fewer dollars available to buy from stores. Constant budget cuts means we can’t rebuild our cities when disaster strikes. Slashing funds for libraries, schools, and social services means our workforce is less and less prepared to deal with changing conditions, and our society becomes a little more than a shadow of what it could have been.

So what works?

Well I think we need to spend more on rebuilding our infrastructure. We need fix our bridges before they collapse, look at the Tappan Zee Bridge…

Since 2002, the bridge's ratings slipped in five of 11 categories, according to Federal Highway Administration reports.

In three critical categories for evaluating the span's safety — roadway deck, superstructure and substructure — the Tappan Zee is rated "poor," receiving grades of 4 on a scale of zero to 9. A report due later this year will show no improvement, a state official said.

And in a dramatic example of continuing decay, last week a hole, known as a "punch-through," opened up in the deck, marking at least the second time since February that pieces of the roadway fell into the Hudson River below.
(LoHud.com)

That was written in 2005 and still nothing has been done. And there are thousands of other bridges like that around the country. We do not need any more Mianus River Bridge or the Minneapolis I-35W Bridge collapses. We need to spend money on construction projects for infrastructure around the country.

During the Bush administration the “supply siders” said that if you cut taxes and cut spending that the economy will grow and that in turn will increase tax revenue. Well that didn’t happen, instead it turned around and bit us in the ass. In October 2008 the stock market collapsed and took the economy with it. We went from a budget surplus to one of the largest budget deficits in history during his administration.

I believe that we do have to cut the budget, but at the same time we have to increase taxes. We have to spend more wisely. When the government spends money, it generates more money because of what is commonly called “priming the pump,” a theory developed by John Keynes, this is from the “wiseGEEK"…

In Keynes' theory, one person's spending goes towards another person's earnings, and when that person spends his or her earnings, he or she is, in effect, supporting another person's earnings. This cycle continues on and helps support a normal, functioning economy. When the Great Depression hit, people's natural reaction was to hoard their money. Under Keynes' theory, this stopped the circular flow of money, keeping the economy at a standstill.

Keynes' solution to this poor economic state was to "prime the pump." He argued that the government should step in to increase spending, either by increasing the money supply or by actually buying things itself. During the Great Depression, however, this was not a popular solution. It is said, however, that the massive defense spending that United States president Franklin Delano Roosevelt initiated helped revive the U.S. economy.

In today’s economy, money is being horded by the billionaires and millionaires while the middle class is being squeezed. The middle class is what stimulates our economy with their buying on refrigerators, cars, and televisions and when they cut back on spending the economy shrinks. Since 1990 the CEO pay has increased by 298.2% while the average pay for production workers rose by only 4.3% which didn’t even keep up with inflation. (source: Business Insider)

(All graphs are from the Business Insider)

The only other time when the gap was as great as it is now was during the Roaring Twenties and the era of the Robber Barons. During the fifties and sixties when our economy grew by leaps and bounds the highest tax rate were between 70 – 90% compared today’s highest tax bracket of 35%.

Take a look at this graph 

Supply Side Economic does not work. It didn’t work for President Regan, it didn’t work for President Bush and it will not work for Romney.

The economist John Kenneth Galbraith wrote that,

"Mr. David Stockman has said that supply-side economics was merely a cover for the trickle-down approach to economic policy—what an older and less elegant generation called the horse-and-sparrow theory: If you feed the horse enough oats, some will pass through to the road for the sparrows." Galbraith claimed that the horse and sparrow theory was partly to blame for the Panic of 1896." (source: Wikipedia)