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Sat Dec 22, 2012, 04:42 AM

Bill Black: Let’s Celebrate the Failure of the July 2011 Great Betrayal

By Bill Black, the author of The Best Way to Rob a Bank is to Own One and an associate professor of economics and law at the University of Missouri-Kansas City. Cross posted from New Economic Perspectives

In July 2011, President Obama and Speaker Boehner reached an agreement in principle on a deal crafted to inflict $4 trillion in austerity by raising taxes modestly, slashing social spending, and beginning to unravel the safety net. The deal would have been a disaster for America. Unemployment was 9.1%. The deal would have thrown us back into a recession and caused unemployment to surge. Recessions and increased unemployment cause tax revenues to fall and increase demand for social services (e.g., for unemployment compensation) – they produce large deficits. Austerity kills jobs and frequently increases deficits. The Eurozone is the latest demonstration of this fact.

We should, therefore, all be celebrating the failure of the July 2011 austerity deal. We almost committed an act of economic self-mutilation of tragic proportions. Instead, because of the failure to adopt austerity in July 2011 we followed an economic policy based on modest stimulus. As predicted by most economists (including my UMKC colleagues) that policy produced modest growth and modest reductions in unemployment. The recovery produced the sharpest reduction in budgetary deficits in modern U.S. history. The Eurozone’s leaders’ austerity policies forced many nations back into recession. Austerity was most draconian in the periphery where it produced Great Depression levels of unemployment, particularly for young adults. The dominant media meme about the “fiscal cliff” is that it is an insane austerity program that would force the U.S. back into a gratuitous recession and cause large increases in unemployment. Logically, that should cause the media to recognize that the far more severe austerity blows that Obama and Boehner sought to inflict on the U.S. in July 2011 at a time when our economic recovery was much weaker than it is today would have been disastrous and that we should be overjoyed that the deal fell apart.

The media, however, constantly warns us of the need not to repeat the “failure” to reach the July 2011 deal. They show no sign of recognizing the logical incoherence in simultaneously warning that the fiscal cliff’s austerity must be avoided lest it force the nation back into recession and that it is urgent that we adopt austerity. Media reports virtually never explain that if the July 2011 austerity deal had been finalized the results would have been catastrophic.

The media is similarly incoherent when discussing (more precisely, ignoring) another key aspect of the fiscal cliff – its origins. The “fiscal cliff” is not really a cliff, but it is definitely an economically illiterate and self-destructive austerity program. That is the first key analytical aspect of the origins of the fiscal cliff – it was known to be an economically illiterate and self-destructive austerity program when it was adopted. The obvious question, which the general media studiously ignores, is why the parties agreed to the “fiscal cliff” deal when it was obvious that it would cause catastrophic damage to our economy and people. The “fiscal cliff” (austerity) deal is the deal that did not fail – it was the bipartisan deal that became law in August 2011.

Read more at http://www.nakedcapitalism.com/2012/12/bill-black-ets-celebrate-the-failure-of-the-july-2011-great-betrayal.html#msriyYB0gizH984e.99

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Reply Bill Black: Let’s Celebrate the Failure of the July 2011 Great Betrayal (Original post)
wilsonbooks Dec 2012 OP
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Prometheus_unbound Dec 2012 #1
cbrer Dec 2012 #2

Response to wilsonbooks (Original post)

Sat Dec 22, 2012, 05:15 AM

1. -

I broadly agree with what the article says on austerity and the poor media coverage of the issue.
However, the part about the fiscal cliff is extremely misleading.
In the case of the fiscal cliff, no deal = austerity; more austerity, in fact, than with most realistic deals. In particular, chained cpi, while awful in its own right, would not deal a single short term blow, and its effect on the recovery would be negligible.
Ideally, a deal should center on agreeing to spend more and tax a little less than with "no deal". Given that I do favor big government and that the current tax revenue is historically low, I would like the deal to be skewed toward preserving only very limited cuts in taxes for low incomes and keeping most of the government spending, but this is nothing but my personal wish list.
I am one of those who are disappointed and worried by the president's bargaining style, and overall, I think we should run over the cliff rather than make a bad deal; but still, I repeat, putting it like the article does is questionable at best.

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Response to wilsonbooks (Original post)

Sat Dec 22, 2012, 05:45 AM

2. All the political PTB


seem to believe that the stimulus was well spent and responsible for our modest recovery. It seems more likely to me that the funds spent on TARP and bailouts could have been more productive in the hands of the citizens who were financially raped by vulture capitalists. And would have had a more positive effect on small and medium businesses that didn't benefit from lobbyists access to DC purse strings. We also would have had fewer issues with the condition of this nations' infrastructure if funds were earmarked for job creation in the DOT.

It's a great thing that we avoided "austerity" measures in July 2011.

To not RAM the point forward that unemployment, social security, medicare, medicaid are funded directly by people participating in those programs, and have NOTHING to do with debt or debt relief, is to stand by and watch another of the worlds' greatest robberies occur. The crimes that have been legalized or "overlooked" by past and present administrations have at least partially inurred our population into believing that big business must operate this way, and we must accept the political decisions that further our move into poverty.

We've got to turn this ship around people. The positive baby steps enacted by the Obama administration are encouraging. I'm holding out hope he's strategizing around the GOP, and will force economic choices that will benefit this nation, and begin a return to a true Progressive path.

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