Let's Celebrate the Failure of the July 2011 Great Betrayal - Bill Black/HuffPo [View all]

[WillyT]

Let's Celebrate the Failure of the July 2011 Great Betrayal
Bill Black - HuffPo
Posted: 12/20/2012 10:57 am

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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 percent. 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.

It is revealing that no one in the media even attempts anymore to defend the bipartisan fiscal cliff (austerity) deal. The media normally have a romantic crush on anything bipartisan, no matter how much it harms the nation. The fiscal cliff austerity deal is so obviously stupid that even the media almost universally criticize it. This should prompt three obvious questions.

1. What idiot designed the fiscal cliff (austerity) deal?

2. Why did both parties support it?

3. Why did the media not denounce the deal before it was adopted?

The answers are:...

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More: http://www.huffingtonpost.com/william-k-black/obama-fiscal-cliff-austerity_b_2338440.html