Who does the political class listen to? A new report shows it's not you and me.
Demos has produced a very important document about our austerity crisis. I don't think its conclusions will surprise many of you, but it certainly should be eye-opening to general public. It discusses the well-known fact that austerity is counter-productive in an economic down turn and that unemployment remains our greatest barrier to a full recovery. And it lays out the time-line of the politicians' obsessive focus on deficits at exactly the wrong moment.
But this is where it gets really interesting:
The “donor class”—the segment of the population that donates to political campaigns—is disproportionately comprised of affluent Americans. Of those that contribute more than $200 to a campaign (the point at which detailed disclosure is mandatory), 85 percent have annual household incomes of $100,000 or more.17 An annual income of $100,000 puts a household in the richest 20 percent of income earners.18
In contrast to the majority of Americans, the donor class does not prioritize policies to create jobs and economic growth. While little data is available on how affluent Americans view national priorities, a few surveys do explore this issue. For example, a September 2012 survey by the Economist magazine found that respondents making over $100,000 annually were twice as likely to name the budget deficit as the most important issue in deciding how they would vote than middle- or lower-income respondents.19
A 2011 Russell Sage Foundation study explored how wealthy respondents prioritized different policy choices. The survey found that 87 percent of affluent households believed budget deficits were a “very important” problem, the highest percentage of all listed perceived problems.20 The authors of the study comment further:
One third (32%) of all the open-ended responses mentioned budget deficits or excessive government spending, far more than mentioned any other issue. At various points in our interviews, respondents spontaneously commented on “government over-spending.” Unmistakably, deficits are a major concern for most of our respondents. Nearly as many of our respondents (84% and 79%, respectively) called unemployment and education “very important” problems. However, each of these problems was mentioned as the most important by only 11%, making them a distant second to budget deficits among the concerns of wealthy Americans.
Reducing the budget deficit is seen as so important to the affluent that a strong majority of them are willing to pay more taxes in order to reduce the federal deficit (65 percent) or cut domestic programs like Medicare, education, and highways (58 percent) for deficit reduction. In contrast, only 34 percent of the general public are willing to pay more taxes and only 27 percent favor spending cuts for deficit reduction.
I don't think anyone has explored why these people feel this way so we'll have to guess. It's not that they are afraid of paying more in taxes since they are obviously willing to do that. So what is it?
I'm going to guess that it stems from a faith-based confidence in the technocrats and financial elites who all insist that this is a huge threat to our economy, combined with the fact that they will not personally be particularly affected by their proposed "fixes." After all, when you have plenty of money, paying a bit more in taxes really is fairly meaningless --- the only potential "sacrifice" is the loss of a luxury good or service. And they don't care about the chump change that our social insurance plans provide --- they'll be fine without them (or think they will ... health care is really expensive for old people.) So this is largely a theoretical solution for them. They won't suffer for it so they are more than "willing" to accept the "sacrifice" for "the greater good."
But why do the technocrats and financial elites think this is such a good idea in the first place if it doesn't really help the economy and degrades the thriving middle class that creates the demand required for solid growth?
Wall Street interests also heavily advocate for debt reduction. The “Fix the Debt” campaign has raised $60 million and recruited 80 corporate CEOs to lobby for a deficit reduction plan that would lower corporate taxes and place the cost burden of deficit reduction on lower income and elderly populations.21 Combined, the 95 companies that make up Fix the Debt have spent almost $1 billion on lobbying and campaign contributions over the past four years.22 In fact, 22 of the companies have spent more on lobbying than they have paid in taxes in the past three years.
If the Fix the Debt plan is adopted, 63 of the companies represented would gain as much as $134 billion in tax windfalls by being allowed to repatriate funds without paying taxes. To pay for this windfall, deep spending cuts would be made to safety net programs such as Medicare. On an individual level, the CEOs backing the plan received a combined total of $41 million in savings last year due to Bush-era tax cuts.
And I would wager that another belief is circulating that the West simply must cut wages and living standards or be overtaken by competitors in places like China and India. I don't know how fully formed this idea is among the One Percent, but I think it's there. (And those below them in the Upper 19% should probably rethink their alliances --- they are going to get screwed too if that's the case.)
But beyond all that, I think this is the most astonishing finding in all this:
This is a major divide and it's obviously not partisan since, for these purposes, wealthy is defined as the top 20% --- and we know that this cohort is composed of members of both Parties. No, what this reveals is that the GOP anti-government propaganda of the last 30 years has truly just appealed to a narrow segment of the population. A majority of the country not only believe that the Federal Government should be active in helping people find a job, it should provide jobs if the private sector is unable to do it.
Nobody in Washington (other than Bernie Sanders and a few members of the progressive caucus) can be said to represent the majority view. And yet Bernie and the CPC are considered extreme outliers. In fact, both political parties are answering pretty much only to the wealthy, with the Democratic administration actually being worse than the Republicans with its insistence on keeping "entitlements" on the table along with tax hikes. This is, after all, the preferred "balanced approach" of most of the wealthy people:
Indeed, one can say that the President's plan most resembles the UK Tory prime minister's, with his "balanced approach" of higher taxes and spending cuts:
Britain’s Parliament, led by Conservative Prime Minister David Cameron, enacted steep spending reductions when his coalition government took office in 2010. Most departments were required to slash at least 25 percent from their budgets, shaving $180 billion from the nation’s $1.4 trillion debt.
The government estimated 66,000 public jobs would be lost in the first two years of austerity, but so far about 372,000 have been eliminated, according to Lombard Street Research, a London forecasting firm.
The Cameron government also imposed a wage freeze for all but the lowest tiers of government workers, tougher requirements to qualify for public housing and disability payments, and massive cuts to the welfare system.
At the same time, the sales tax on most goods and services was raised to 20 percent from 17.5 percent and capital gains taxes on investments increased to 28 percent. Corporate taxes were reduced to 24 percent from 28 percent over five years to encourage business growth and hiring.
Cameron said the measures were necessary for a nation facing its largest-ever peacetime debt, a financial abyss that grew deeper after a massive taxpayer bailout of the nation’s banking industry in 2008 and 2009.
The government and its supporters concede that these steps are painful in the short term, but argue they will maintain the confidence of financial markets, attract business and investment, and lead to prosperity, much as the austerity policies of Margaret Thatcher in the 1980s revived a moribund British economy.
Earlier this month, George Osborne, chancellor of the exchequer, the government’s top financial official, announced that austerity measures would need to be extended into 2018 because of a slower recovery than forecast, which he blamed on the broader economic slowdown in Europe. But Osborne asserted that the bitter economic medicine was beginning to show results, as evidenced by the flow of investment into British government bonds, a sign of increasing confidence in the UK economy.
“It’s a hard road, but we are getting there,” Osborne told the House of Commons. “Britain is on the right track — and turning back now would be a disaster.”
It's hard to believe that any government could be so cavalier about the suffering of its people and the loss of years and years of opportunity and potential by doing this. But that's what they're doing. I wonder when the British people are going to rise up against this? Being stoic is one thing. Being unnecessarily self-destructive is another.
And guess what?
What has Britain achieved through its austerity? Since Cameron took office in spring 2010, unemployment hasn’t budged much past 7.9%. Consumer confidence declined further. And gross domestic product, the sum of all goods and services, is below the level when Cameron assumed power.
Now, the US has a political system that's basically gridlocked, unlike Britain's. And contrary to the shrieking we hear daily from our elites about how this is a terrible, terrible thing and the Market God's are going to punish us terribly unless we "prove" that we can reduce our budget deficit, I'm going to guess that the Market Gods (or rather, the intelligent humans who are investing their money in them) would rather have gridlock than the results that the British obtained from their austerity program --- a double dip recession.
And here's where we are in this mess: we must face down yet another round of austerity, not knowing if the government is going to immediately cut more spending or agree to rob Social Security and Medicare down the road in order to avert catastrophic austerity in the near term. It's slightly better than Britain, but we seem to be content with a long period of economic torpor rather than another full fledged double dip recession. Lucky us.
Everyone seems to be seeing green shoots. But that's not guaranteed:
In the last month alone, consumer sentiment, by at least one measure, experienced the greatest monthly plunge since the height of the financial crisis. Consumer spending, the key driver of the U.S. economy, this year had outpaced business spending. (Corporate America seemed more finely attuned to the eventual showdown in Washington, D.C. By some estimates, some half a trillion in business cash is on the sidelines.) Consumers are now flagging, too.
Unfortunately, there's not a Nemo-sized snowball's chance in hell that will happen. The only question is whether they will be content to just tread water with 7.9% unemployment or whether they want to follow Britain down the rabbit hole.
The Times Magazine writer who profiled him, Davidson, minces no words about whether Posen’s Keynesian-driven theorems can find a place in America: “Doing neither stimulus nor austerity—which is basically what’s happening in the United States—isn’t working, either. So, [Posen] says, let’s try stimulus, even if we don’t know for sure it’ll do the job.”