By William K. Black
Daniel Indiviglio, a columnist for Reuters, wrote a column(“Dogma show”) denouncing the agreement to extend the payroll tax reduction. He was distressed by what he considered faux fiscal restraint. Indiviglio, writing at the same time that the Eurozone fell back intorecession because of its austerity program, denounces both parties for being inthe grip of dogmas that cause them to fail to impose greater austerity.
Why does Indiviglio want the U.S. to followthe worst possible response to a severe recession – austerity? Because he is driven by a failed economicdogma, he has neither the capability nor any felt need to explain why hebelieves we should copy the Eurozone’s failed policies and join them in fallingback into recession. He is so trapped byhis dogma that he knows that austerity is the only rational economic policy andcannot conceive that his views are ideological because they are soself-evidently true. He hasunintentionally proved his point about how destructive discredited economicdogma is.
“Republicans in Congress, whohave pounded the table on deficit reduction since last summer’s bruising debtbattle, have backed down on a demand that spending be slashed to cover the costof extending the tax cut. To let it ride for another 10 months will cost $100billion. So much for fiscal discipline.”
Calling austerity “fiscal discipline” (a more positivephrase) does not change the fact that the columnist believes that the means torecover from a severe recession (where private sector demand is grosslyinadequate) is to reduce public sector demand. As the Euorzone nations have just shown, however, reducing public sectorwhile trying to emerge from a severe recession is a superb means of causing arenewed recession. The renewedrecession, in turn, deepens the deficit. Indiviglio’s austerity strategy is self-destructive.
Unlike the Bush tax cuts that went overwhelmingly to thewealthy, reducing the payroll tax is a superb means of rapidly expandingeffective private sector demand. Thepayroll tax is highly regressive (the working and middles classes pay a muchhigher percentage of their income than do the wealthy) so the payroll taxreduction gets money overwhelmingly to the working and middles classes and itdoes so immediately. This is why manyprogressive economists supported the payroll tax reduction as an immediateresponse to the Great Recession.
So, how does Indiviglio attempt to explain why his austeritypolicy is desirable and why we should ignore the Eurozone’s failed austeritypolicies in comparison to the success of the payroll tax reduction in theU.S.? He is so deep in the grip of dogmathat he does not try.
What is really going on with Indiviglio? His dominant dogma drives his desire to makelarge cuts in Social Security and health care for the elderly and thepoor. He is an ideologue. Indiviglio describes himself as “a 2011Robert Novak Journalism Fellow through the Phillips Foundation.” That Foundation’s self-description reads:
The Phillips Foundation
“Is a non-profitorganization founded in 1990 to advance constitutional principles, a democraticsociety and a vibrant free enterprise system. In 1994, The Robert NovakJournalism Fellowship Program was launched to award grants to working print andonline journalists supportive of American culture and a free society.”
Indiviglio has attacked Reuters’ investigative journalistsfor an expose on the Koch brothers’ decades of unethical and destructivebehavior. His apologias for Koch and the“vibrant free enterprise system” appear in columns for Reuters.
Here is the closest he comes to explaining why he thinks theU.S. should have adopted austerity in response to the Great Recession.
“Of course, the Democratsaren’t acting any more responsibly. They’re happy to extend the payroll-tax cutwithout paying for it, too. And though willing to slash some spendingelsewhere, Barack Obama’s party is still unwilling to tackle the real problem:safety-net programs. This was evidenced most recently by the president’s budgetplan on Monday.
Despite losing its AAA credit rating, the United States isn’t in any realtrouble yet. Its debt held by the public is about 70 percent of GDP – wellbelow Greece’s 160 percent. But America’s ratio is also nearly double what itwas just four years ago. The payroll tax fight only goes to show just howlittle political will there is in Washington, just as in many other capitalcities around the world, to seriously address the problem.”
Federal deficits equal “[ir]responsible” behavior underIndiviglio’s dogma. Why, because theyare a “problem.” What is the nature “theproblem?” Our deficit is much largerthan it was “just four years ago” when the recession was beginning. Yes, and it was over twice as large (relativeto GDP) when World War II ended. Ourdeficit was not caused by our “safety-net programs.” Our deficit is the product of fighting twowars, the Bush tax cuts, and having by far the most expensive military in theworld, and then suffering from a Great Recession that dramatically reduced taxrevenues.
More basically, the increase in our federal budget deficit arisingfrom the sharp fall in tax revenues caused by the Great Recession isn’t “theproblem.” As I’ve explained, it isattempting to balance the budget in response to a severe recession that is theproblem. Had our stimulus program beenlarger, as we urged in 2008, our economic recovery would be stronger and ourfederal deficit would have been smaller. Had the Republicans and “blue dog” Democrats not killed the revenuesharing component of the stimulus bill we also could have avoided the pervasivestate and local fiscal crises and job and spending cuts that have made theGreat Recession far more damaging.
Indiviglio never explains what he thinks is “the problem”but his references to the U.S. “losing its AAA credit rating” yet its deficitsbeing “well below” Greece’s (relative to GDP) imply that he thinks that “theproblem” is that we will have to pay extreme interest rates to sell U.S. debt. (He appears to think this is inevitable, buthas not happened “yet.”) But the U.S. isnothing like Greece because we have a sovereign currency, our debts aredenominated in that currency, and our currency floats rather than having afixed exchange rate. The result is thatwhile our deficit is much higher due to the Great Recession, and while we havelost our AAA rating, we are able to borrow money for at interest rates that arewithin a hair’s breadth of the lowest rates in modern U.S. history. The bond markets take into account thefederal government’s long term budgetary situation and do not see anymeaningful risk to purchasing bonds. Thelong-term bonds markets do not believe “the problem” is even a trivial problem,and the issue isn’t “yet” when one is considering long-term markets.
What are the “many other capital cities” that have “failedto seriously address the problem”? Doeshe mean Tokyo? Japan’s budget deficit isas large (relative to GDP) as Greece’s. Japan has a modest economic recovery and can borrow long-term at atrivial interest rate. Japan has asovereign currency. Argentina lacked atrue sovereign currency because it tied its currency to the U.S. dollar. It defaulted on its debt – and hasexperienced high economic growth since it did so and re-adopted a sovereigncurrency. Iceland has defaulted on someof its international debts. It has asovereign currency. It has one of thestronger recoveries in Europe. Nationsthat use the euro do not have a sovereign currency. The dominant strategy of euro nations inresponse to Great Recession has become austerity because they defined “theproblem” as deficits. The Eurozone isfalling back into recession because of that policy. The Great Recession is the problem. The dogma of austerity is the greaterproblem.
Posted in austerity, dogma, indiviglio, payroll tax, recession, Uncategorized, William K. Black
Tagged austerity, dogma, indiviglio, payroll tax, recession, William K. Black