Saturday, November 19, 2011

Balancing budgets and cutting waste equals "austerity economics"?

With everyone hot and heavy over the "austerity" measures forced on Greece by the EU--and the threats of more of the same for other member nations--it's no wonder the term has become so prominent in political discourse. Even gravitas-laden pundits are using it. For instance, here is Robert Reich making a bold--if mind-numbingly ignorant--statement at HuffPo. The piece is entitled "Stop the Austerity Train Wreck." Reich whines about budget cuts, then offers a series of fixes for what ails the economy. The first one:
No cuts before jobs are back -- until unemployment is down to 5 percent.
He appears to be serious. And this is a guy that was actually Secretary of labor under Clinton, has been a professor at Harvard, and is currently at UC Berkeley. Yet, his grasp of the economy is like that of an undergrad in an introduction to macro class, as he seems to believe that economic growth can only be incentivized by government spending. Sure, there's an argument to be had about that, but the absolute is complete nonsense. NO cuts? No matter what? And never mind that the "cuts" on the table are hardly of an "austere" sort.

His third proposition (the second is just mumbo-jumbo about creating jobs) is--if possible--even sillier:
To pay for this, raise taxes on the super-rich. It's only fair. Never before has so much income and wealth been concentrated at the very top, and taxes on the top so low. Go back to the 70 percent marginal tax we had before 1980. And include more tax brackets at the top. It doesn't make sense that any income over $375,000 is taxed at the same 35 percent, even if it's a billion dollars. And tax all sources of income at the same rate, including capital gains.
Forget the "tax the rich" meme for a moment and consider just the final bit. Reich would have capital gains taxed as ordinary income, on the same progressive scale as all income. That's a recipe that would have one demonstrable consequence: the stagnation of capital. It would remove incentives to release capital, to reinvest. There is no surer way to stymie economic growth. Yet, Reich would have us believe that this is a recipe to restore prosperity. On what planet?

There is no doubt--in my opinion--that there are issues to be addressed on Wall Street and in corporate America. And--again, in my opinion--there are ways to make sure some wealthy people and some companies aren't getting a free ride at the expense of everyone else. First and foremost would be getting rid of tax breaks, subsidies, and loopholes. Reich actually seems to understand this. But the restriction of capital via punitive taxation is just stupid.

Beyond all of that, the language of criticism--austerity measures/economics--is inappropriate. Sure, there are libertarians and the like that would love to see truly massive cuts to government spending, that would love to see various entitlements eliminated completely. But that's not what's really on the table in DC and in the Super Committee. Simply seeking to insure that the government stops routinely spending more than it takes in, trying to slow the auto-growth of across the board spending, and wanting to slash waste and useless programs is not austerity economics. Mr. Reich has spent enough time in college classrooms; he should have learned to get his terminology right, by now.

Cheers, all.

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