“The patient is sicker so we have to apply more leeches.” Countries that are trying to fix deficits with spending cuts are finding out that taking money out of their economies by cutting government is slowing their economies. Duh! Imagine that! So instead of cutting deficits the resulting slowdowns are making their deficits worse as tax revenues drop and joblessness goes up. So what are they proposing? More “austerity” spending cuts. I call them “austeridiots.”

It Didn’t Work So Do It More

See if you can find the logical flaw in this AP news report: French growth sputters to a halt in 2nd quarter,

The French government was put under further pressure to cut deeper into spending after figures Friday showed growth in Europe’s second biggest economy ground to a halt in the spring, in another sign that the global economy is facing rising recessionary threats.

With the worse-than-expected French growth figures suggesting a possible budget shortfall this year, government ministers may have to find additional savings…

Right, the cuts are slowing the economy, which means the deficits are worse, so they “have to find additional savings.” Cutting government – taking money out of the economy – slowed their economy, so they think they’ll solve the problem by taking more money out of their economy. Austeridiocy.

Austeridiocy Here, Too

Our leaders, in their austeridiot geniosity, “solved” the made-up “debt-ceiling crisis” with a two-step process. First they will take about $1 trillion out of the economy right away. Then a 12-member “Super Congress” will try to come up with another $1.2 – 1.5 trillion to take out of the economy. If they can’t come up with a deal, then there will be across-the-board cuts to take that money out of the economy.

The idea is that by taking that money out of the economy, there will be more money in the economy. And with less money in the economy, the resulting increases of money in the economy will bring more tax revenue. This strategery was thought up by the crowd that claims cutting taxes increases tax revenues. (It is important to notice that the ideas that come from this crowd always, always, always, always, always, always, always end up making the rich richer and the biggest corporations bigger at the expense of the rest of us. So maybe they’re smarter than their ideas make them appear.)

Cuts Only Shift Costs, They Don’t Cut Costs

The things government does have to be done, and cutting government doesn’t get rid of the need, it just shifts the costs. Cutting government budgets only shifts the cost away from the wealthier taxpayers who were asked to pitch in and give back to the system that enabled their wealth. It removes the “take care of and watch out for each other” concept of democracy and puts the costs on the backs of vulnerable individuals. Cutting government doesn’t remove the costs from the larger economy, and often increases the costs to the larger economy.

Example: Health care for old people is provided by government because they need the health care. If you cut or phase out Medicare the health problems of the elderly don’t go away. And the cost to the economy is still there. In fact, by shifting these costs from government onto the back of the elderly themselves it increases the cost to the overall economy because it gets rid of the economy-of-scale government offers. Individuals do not have government’s ability to buy in bulk for millions and negotiate for lower costs. And by pitting individuals against the giant predatory insurance corporations, the individuals end up paying even more, which further increases the costs to the overall economy. Finally, pushing these costs onto vulnerable individuals drains what’s left of their money, which lowers their participation in the rest of the economy, further cutting consumer demand.

That Trick Never Works

See if you can find any examples in history of government budget cuts increasing economic growth. But there are examples in history of government cuts slowing growth. This is because taking money out of the economy slows the economy’s growth.

An Alternative That Will Work

What if, instead of doing things that have always failed, we addressed our economic slowdown in a way that has always worked in the past? What if we took this opportunity to invest in repairing our aging, crumbling infrastructure, bringing it up to 21st-century standards? The long-term result of this would be an economy that is more efficient and competitive in world markets, which would of course help our businesses. But more important right now this would mean hiring millions of people to do the work. These people would then be paying taxes and would not be receiving unemployment, food stamps, etc. So of course this would help lower deficits. Also they would be participating in the economy again, making their mortgage payments, buying clothes, even cars. So of course this would help the economy.

The Contract For The American Dream And The Emergency Jobs Bill

The Contract For The American Dream And The Emergency Jobs Bill both call for investment in repairing and modernizing our infrastructure, to improve our economy and to create millions of jobs. So does The People’s Budget from the Congressional Progressive Caucus.

The first step in the Contract For The American Dream (please, please click through) is:

Invest in America’s Infrastructure

Rebuild our crumbling bridges, dams, levees, ports, water and sewer lines, railways, roads, and public transit. We must invest in high-speed Internet and a modern, energy-saving electric grid. These investments will create good jobs and rebuild America. To help finance these projects, we need national and state infrastructure banks.

The Fact Sheet about this idea begins,

For decades America has deferred maintenance of our public infrastructure – our roads, bridges,
airports, ports, rail, levees, schools, broadband, wastewater and sewage systems, energy systems, and
waterways. This infrastructure serves the public’s safety and welfare needs and supports the nation’s
economic growth and competitiveness. This is a core function of government and we aren’t doing it.

This is work that has to be done. This is millions of jobs that need doing, while millions of our people are looking for work. Instead of taking money out of our economy, let’s invest in our economy and our people, and live off the dividend.

This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture. I am a Fellow with CAF.

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About the Author

Dave Johnson

Dave Johnson (Redwood City, CA) is a Fellow at Campaign for America's Future, writing about American manufacturing, trade and economic/industrial policy. He is also a Senior Fellow with Renew California. Dave has more than 20 years of technology industry experience including positions as CEO and VP of marketing. His earlier career included technical positions, including video game design at Atari and Imagic. And he was a pioneer in design and development of productivity and educational applications of personal computers. More recently he helped co-found a company developing desktop systems to validate carbon trading in the US.

One Response to Austeridiocy: Budget Cuts Take Money Out Of The Economy

  1. Nathan Duke says:

    Mr. Johnson, based upon your bio, it is impossible to believe that you are anything but an intelligent, capable human being. It is also clear that you have spent much of your life & career engaged in commerce in the private sector of a free-market [sic] economy. If I am correct about these incidentals, I find it almost inconceivable that you authored the foregoing article. Simply put, you must be kidding! As a computer professional, you must employ logic as a tool of your trade. How is it then that you write, “taking money out of their economies by cutting government”. Sir, taxes remove money from an economy. Government taxes. If you reduce government cash-flow (taxes and spending), the money never LEAVES the economy. The state (in the abstract sense) does not create wealth. Private citizens do that with the businesses they build. If you want an economy to flourish, the state must stop seizing funds otherwise used to keep commerce going! Anyhow, I encourage you and your readers to visit http://www.mises.org for the best damn Economics info I have found anywhere. Okay, take care my fellow citizen. Thanks for listening, I feel better!

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