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 into recession because of its austerity program, denounces both parties for being in the grip of dogmas that cause them to fail to impose greater austerity.
Why does Indiviglio want the U.S. to follow the worst possible response to a severe recession – austerity? Because he is driven by a failed economic dogma, he has neither the capability nor any felt need to explain why he believes we should copy the Eurozone’s failed policies and join them in falling back into recession. He is so trapped by his dogma that he knows that austerity is the only rational economic policy and cannot conceive that his views are ideological because they are so self-evidently true. He has unintentionally proved his point about how destructive discredited economic dogma 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 positive phrase) does not change the fact that the columnist believes that the means to recover from a severe recession (where private sector demand is grossly inadequate) is to reduce public sector demand. As the Euorzone nations have just shown, however, reducing public sector while trying to emerge from a severe recession is a superb means of causing a renewed recession. The renewed recession, in turn, deepens the deficit. Indiviglio’s austerity strategy is self-destructive.
Unlike the Bush tax cuts that went overwhelmingly to the wealthy, reducing the payroll tax is a superb means of rapidly expanding effective private sector demand. The payroll tax is highly regressive (the working and middles classes pay a much higher percentage of their income than do the wealthy) so the payroll tax reduction gets money overwhelmingly to the working and middles classes and it does so immediately. This is why many progressive economists supported the payroll tax reduction as an immediate response to the Great Recession.
So, how does Indiviglio attempt to explain why his austerity policy is desirable and why we should ignore the Eurozone’s failed austerity policies in comparison to the success of the payroll tax reduction in theU.S.? He is so deep in the grip of dogma that he does not try.
What is really going on with Indiviglio? His dominant dogma drives his desire to make large cuts in Social Security and health care for the elderly and the poor. 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 Democrats aren’t acting any more responsibly. They’re happy to extend the payroll-tax cut without paying for it, too. And though willing to slash some spending elsewhere, Barack Obama’s party is still unwilling to tackle the real problem:safety-net programs. This was evidenced most recently by the president’s budget plan on Monday.
Despite losing its AAA credit rating, the United States isn’t in any real trouble yet. Its debt held by the public is about 70 percent of GDP – well below Greece’s 160 percent. But America’s ratio is also nearly double what it was 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 two wars, the Bush tax cuts, and having by far the most expensive military in the world, and then suffering from a Great Recession that dramatically reduced tax revenues.
More basically, the increase in our federal budget deficit arising from the sharp fall in tax revenues caused by the Great Recession isn’t “the problem.” 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 revenue sharing component of the stimulus bill we also could have avoided the pervasive state 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 deficits being “well below” Greece’s (relative to GDP) imply that he thinks that “the problem” 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.