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Austerity: The Phony Solution to a Phony Deficit Crisis

The wealthy who profit from economic decline and austerity promoted the so-called ‘fiscal cliff,’ but the way to reduce the deficit is to increase employment.

In the weeks leading up to the passage of the tax deal yesterday, the Tea Party seemed to have taken control of the economic debate once again, continuously promoting ideas that our nation faces a deficit crisis and that the only solution to this crisis is entitlement tax cuts for the so-called job-creators and spending cuts for working people, specifically cuts to professed entitlement programs. That there has been virtually no critical analysis or meaningful coverage of this by either political party or the corporate media is not surprising.

However, if one embraced a modicum of skeptical and healthy doubt when viewing corporate coverage of the so-called “fiscal cliff” or the deficit fiasco, then an excellent story in Business Insider by reporter Joe Weisenthal goes a long way in explaining that the only meaningful way to reduce the deficit as a percentage of gross domestic product (GDP) is to increase the GDP by decreasing unemployment.

The graph in that article, from the St. Louis Federal Reserve, published by Weisenthal, demonstrably exhibits that there is a direct relationship between unemployment and the deficit as a percent of GDP.

To read more articles by Danny Weil and other authors in the Public Intellectual Project, click here.

As Weisenthal explains so well, neither revenues from tax increases – such as the increase on individuals earning over $400,000 and couples earning over $450,000 allowed in yesterday’s bill – nor decreased spending from austerity measures like those Democrats succeeded in keeping out of the final deal on New Year’s Day will substantially decrease the deficit as a percentage of GDP. As the graph makes evident, the only way to decrease the deficit as a percentage of GDP is to decrease unemployment. This means dramatically increasing job opportunities for Americans who want to work. As Wiesenthal and many others have noted, with increased employment, government revenues will increase while, simultaneously, the use of entitlement programs will diminish.

One only has to look at the austerity measures being imposed in Greece, Spain, Portugal, Italy and much of Europe to see that the type of spending cuts proposed by the Tea Party would have led to massive higher unemployment, crippling recession hovering on depression and increased public deficits. Surely, to follow such a path would have been disastrous not only for the United States, but for the global economy in general.

The data in the Federal Reserve graph clearly demonstrates that decreasing unemployment – providing people with opportunities to earn a living – is the central issue in a meaningful deficit reduction. Yet as we witnessed President Obama and the reactionary Republicans dickering over which tax increases and spending cuts should be enacted to reduce the government deficit, no one in Washington was talking about job growth – not Timothy Geithner, not Barack Obama, nor the corporate-labeled “job creators,” a misnomer indeed.

If increasing employment is key to addressing the government deficit, then why does the Tea Party and its fellow corporate travelers promote tax cuts and decreased government spending for working people? It appears that the Tea Party was working assiduously to undermine the economy on behest of the banksters and billionaires who fund them through shadow groups such as Freedom Works, and presumably, they will continue to do so when the new Congress convenes on Thursday.

Banksters and billionaires alike know they benefit from a weak economy for several reasons: low interest rates allow them to borrow money cheaply and then loan it out at higher spreads; low inflation helps to protect the value of the 1 percent’s assets; decreased prices allow them to buy assets more cheaply, thereby forming monopolies in the interest of decimating competition. Labor costs also fall in a weak economy, creating a reserve labor army made up of frustrated and desperate workers willing to work at almost any price. Then there are the government services that are put on the privatizing block as part of, supposedly, “deficit reduction.” All of this is contrived to benefit a tiny fraction of the ruling class while assuring that American workers remain desperate and consequently willing to accept lower wages, “right to work” state laws, the decimation of unions and other policies that work against their own interests.

The Tea Party promotes tax cuts on the wealthy as a means of economic stimulus, despite evidence to the contrary. As my recent article laid bare, low capital gains tax rates have in fact resulted in bloated CEO dividends, dividends these “job creators” paid out to themselves to avoid taxes – all of which could have in fact been used to invest in America to spur job growth. It is clear: job creation and job growth are not on the agenda of corporate America and their wheelmen – unless the jobs created are in China, India or other cheap labor hubs.

The truth is that the deal as it passed, which ends most of the Bush tax cuts and increases taxes on investment income for the wealthy, will likely encourage business to reinvest profits and stimulate employment growth. At the very least, one would expect that in a democracy, a fiery debate would have been occasioned over such theories and proposals. Yet not a word sneaked out of the corridors of corporate media power, and the reason is clear: any discussion about job creation tied to deficit reduction fails to benefit greedy CEOs and the other plutocrats who fund, and thereby own, our electoral system, which can hardly be described as a democracy.

The usual suspects who promoted deficit reduction tied to cuts in social programs for working people utilized multiple sets of strategies to avoid paying any taxes – which, of course, successfully runs up the deficit by starving the government of badly needed revenue – and they have promised to seek cuts to so-called entitlement programs again during the upcoming debt ceiling debate. The Huffington Post reported just how companies – which include Facebook, Apple and Google – funnel profits through Ireland, and then to subsidiaries in the Cayman Islands, in the case of Facebook, or through Ireland and the Netherlands and then to Bermuda, in Google’s case, to avoid ponying up any non-US profits in an accounting trick known as the “Double Irish with a Dutch sandwich.” Facebook, for example, paid less than 1 percent in foreign taxes on $1.4 billion in profits.

The Tea Party and its reactionary running-dog lackeys attack and obstruct the government on behalf of a small group of plutocrats. They are foot soldiers in the ongoing class war waged by the 1 percent in their mad dash to engorge themselves at the expense of working people and the social compact that defined earlier decades, which they are shattering with their agenda.

By steering the country toward spending cuts to social programs, the Tea Party and its deep-pocket backers will continue to try to sabotage the economy, just as they tried and largely failed to do during the recent struggle over the fiscal cliff. Like the procedures put in place which allowed the sub-prime mortgages and the for-profit universities and colleges to economically trample working people, the reactionary fiscal policies Tea Partiers endorse would disproportionately inflict hardship and suffering on people of color, the poor, veterans returning from illegal wars and working people, who all too often find precarious work only, if that.

Finally, as Weisenthal points out in his Business Insider article, if there were a deficit crisis, job expansion would be the solution, not spending cuts or what are otherwise known as “austerity.”

Counterfeit Narratives and Manufactured Crisis

The deficit crisis was a spurious catastrophe manufactured by those in political power, then echoed loudly by the sock-puppet corporate press and the right-wing think tanks that design and quarterback talking points. In fact, the “fiscal cliff” rhetoric in which the argument was routinely couched was cleverly – if ultimately, largely ineffectively – utilized to make a case for slashing government programs at the expense of working people and privatizing government services through contracting out essential services for the benefit of Wall Street. The so-called “deficit crisis” was little more than a phony calamity similar to claims of voter fraud used by the same constituencies to enact voter ID laws and suppress the vote in this country, and we can expect similar tactics during the debt ceiling debates.

Yet even though the concocted “deficit” crisis was a constructed narrative designed to beguile the public, everyone in Washington knew what is going on. The fact that almost no politicians are willing to stand up for the American worker is another example of the corrupting influence of money on politics that the Occupy movement attempted to make clear to the nation and the continuation and growth of which was clearly embraced by the US Supreme Court in the case of Citizens United.

The problem, of course, is that the corporate media prefers the fabricated narrative and talking points of the Tea Party and their billionaire backers, but this should come at no surprise, as the corporate press is owned by the same financial colonizers and looters who benefit from the decline of the American economy and the corruption of the American political system.

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