The Appeal of Austerity Is Fading — Where Is Obama?

Robert Kuttner-co-editor of The American Prospect and a senior fellow at Demos-writes:

But where is the high-profile Obama speech making clear that the top priority for now is putting America back to work, that deficit reduction will come when the economy is back on track — and that the budget will not be balanced on the backs of those who depend on Social Security, Medicare, and other key social outlays?

The misguided Erskine Bowles, with his austerity program, did not drop into the budget debate from Mars. He was appointed by Barack Obama.

The New York Times reported Sunday that Obama has been meeting with vulnerable Democratic members of Congress, offering to do anything to help them — including staying out of their districts. The front-page piece, by political reporter Jeff Zeleny, was headlined, “To Help Democrats in the Fall, Obama May Stay Away.”

Uh, why does this not sound like a winning political strategy? Maybe if Obama got serious about putting Americans back to work and explaining the real connection between an economic recovery and deficit politics, incumbent Democrats — and voters — might welcome the president into their districts.

The best POLITICAL strategy is to implement a direct jobs program–labor-intensive service jobs in fields like education, public health and safety, urban infrastructure maintenance, youth programs, elder care, conservation, arts and letters, and scientific research. Along with the implementation of a direct jobs program, state aid must be implemented as well.

The main argument against state and local aid has been something of a they-made-your-bed take on the matter. “It’s a bad idea to bail out states from making the necessary decisions they need to make to increase and fix their structural deficit problems,” Rep. Paul Ryan told me Thursday (via Ezra Klein). The problem with that argument is states had a record amount of money in their rainy-day accounts.

Here’s Ben Bernanke:

Many states deal with revenue fluctuations by building up reserve — or “rainy day” — funds during good economic times. Measured as a percent of general fund expenditures, the aggregate reserve fund balances for all state governments stood at a record of about 12 percent at the end of 2006; the states represented by the SLC had accumulated above-average reserves of around 16 percent. These high reserve-fund balances were helpful in lessening the severity of spending cuts or tax increases in many states. Nevertheless, given the depth of the recent recession, even these historically high reserve-fund balances proved insufficient to buffer fully the budgets of most states.

When the economy turns around, unemployment moves closer to 6 or 7%, and states start to receive a tax revenue their so called structural deficit problems will vanish. Same goes for the federal government. Worry about jobs, not the long term deficit. The long-term deficit is dealt with when the economy is growing at a reasonable rate, say 4-5%.

Both political parties, if they are to win in November, must create jobs.

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Published in: on August 2, 2010 at 8:47 pm  Leave a Comment  
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