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Evening Focus – The Politics of Economics

February 21, 2012

Our Evening Focus

Evening Focus – The Politics of Economics

The economic recovery appears real but still fragile. Who will get the credit if it continues, or the blame if it slows? (More)

The Washington Post‘s Greg Sargent reports that President Obama warned Congress today not to get complacent as the economy begins to recover:

My message to Congress is: Don’t stop here. Keep going. Keep taking the action that people are calling for to keep this economy growing…There’s a lot more that we can do – and there’s plenty of time to do it – if we want to build an economy where every American has the chance to find a job that pays well and supports a family.
Congress needs to make the Buffett rule a reality. This is common sense. If you make more than $1 million a year, you should pay a tax rate of at least 30 percent. That means that if you make less than $250,000 a year, like 98 percent of Americans do, you shouldn’t see your taxes go up – and we won’t be adding to the deficit.

Today in The Atlantic, Derek Thompson cautioned:

Fast-forward to 2012. The economy has added more than 200,000 jobs in consecutive months. Manufacturing is roaring. Investors are giddy. Stocks have hit 2008 highs. Economists are screaming, “Recovery Winter!”

But here they are, the same old threats. Oil is breaking $100 a barrel again, with Iran halting exports to European countries. Europe is practically in a continental recession, anchored by a full-fledged depression in Greece. And some budget analysts are worrying that we might hit the debt ceiling a few months early, which would mean a redux of the great debt-ceiling space opera of 2011.

Katrina vanden Heuvel wrote today in the Washington Post that the austerity measures proposed for Greece may do more harm than good:

Portugal offers the best example of the folly. The Portuguese have done everything that the International Monetary Fund and the European Union asked in exchange for a $103 billion bailout last May. Spending has been slashed and deficits reduced. Yet Portugal is going deeper in the hole. The ratio of its debt to its economy – or gross domestic economy – has gone up, not down – from 107 percent when the bailout took place to a projected 118 percent next year.

It’s not that its deficits have exploded, but its economy has shrunk. Portugal’s austerity has added greatly to human misery and suffering, while its fiscal progress sinks.

Yet while Mitt Romney agreed today that cutting spending alone would slow economic growth, he said spending cuts must be accompanied by “pro-growth tax policies.” That probably means more tax cuts for the wealthy, although the Romney campaign say he will unveil his comprehensive economic plan later this week.

And at the Campaign for America’s Future, Richard Eskow argues that President Obama’s proposed 2013 budget includes both austerity and growth policies:

In this budget the Pro-Growth, Pro-Fairness President commits himself to real spending for jobs, with less of the smoke-and-mirrors pseudo-spending represented by tax cuts and other gimmicks. He commits to $476 billion in transportation spending, $141 billion in research and development, and additional spending on education and other initiatives.

The budget presentation given to the press by Alan Krueger, who chairs the President’s Council of Economic Advisors, was as eloquent an explanation of our economic situation as has been given from the White House in many decades.
The Austerity President once again commits himself to the meaningless – and potentially reckless – goal of reducing the Federal deficit by $4 trillion over the next ten years. Most economic experts agree that a period of pro-growth spending should be followed by a concerted effort to address the Federal deficit. But it’s too early to know when and how that should best be done.

By committing to this artificial goal, the President is reinforcing the pro-austerity arguments of his opponents – and of the decision-makers who have gutted Europe’s economy and thrown it into another recession.

Over the next eight months, the economic news will not be all positive. Neither will it be all negative. Every change – however small, positive or negative – will be magnified through the lens of partisan electoral politics. Buckle up.

  • winterbanyan

    This is the worst time possible to cut spending, just as we are finally in a recovery. If you tighten government spending, you tighten wallets all around the country. There is less money available and you wind up shrinking demand, and we spiral down again.

    Portugal’s story doesn’t surprise me at all. Will we learn from it?

    Probably not. It’s an election year, and damn the consequences. The GOP doesn’t care what happens to the recovery. In fact, I predict they’ll try to crash it in the hopes that they can win the next election. Then they’ll go on another of their famous spending sprees, as they have every time they’ve taken over from a Democratic president. Let us not forget, Carter and Clinton both turned over surplusses. In no time at all, Reagan and Bush had turned that into huge deficits.

  • NCrissieB

    As a political activist, I love election campaign season. That’s when we’re most active, and when I feel most engaged in the process of our government.

    As a news publisher, I also love election campaign season. There are plenty of stories to choose from, and many are stories that actually matter for our lives and futures.

    As a human, I loathe election campaign season. Every twitch of the polls or the economy is The End Of Life As We Know It … until the next twitch. It’s exhausting.

  • addisnana

    My understanding is that the main driver of European austerity is Germany who are driven by an irrational fear of inflation based on their history. I feel so badly for the Greeks, the Portuguese, the Italians and the Spanish.

    I hope the US, if it won’t listen to Paul Krugman, will at least take a lesson from Portugal and Greece. Too much austerity in the midst of a recession is a proscription for widespread misery.

    Greece’s economy is the same size as Delaware’s economy. Can you imagine if Delaware was in trouble and we were treating them like this? Well maybe if a Republican was President we’d consider it.