REFLECTIONS

Posted on July 9, 2012

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AUSTERITY VS. STIMULUS

Many Republicans support an austerity program as the only way to restore substantial growth in the U.S. economy. Their key provision is sharp cuts in government spending at all levels of government.

They have the opinion that the abuses in our safety-net system, Social Security and Medicare, are so huge that only cutbacks can solve the problem.

Also, any increases in income of estate taxes are a short Band-Aid.

I firmly disagree with this economic position. Take Ireland for example. Ireland’s austerity program has produced few jobs, but that nation has cut its deficit. However, the financial community still has little faith in its economy. The interest rates on Irish bonds are in the realm of Greece and Spain.

Reducing the size of state governments means fewer policemen, firemen, trash collectors, teachers, welfare workers, etc. This will result in less need for taxes, so businesses will have reduced expenses and use the savings to hire more people.

Let’s be honest about this. Reducing the expenses does not lead to hiring more staff. In fact, reducing people leads to fewer people able to buy products.

Also, reducing taxes on the rich does not create more jobs. Businesses hire more staff when the demand for products and services increases.

A stimulus program will make it easier to borrow and to reduce the payments needed on troubled mortgages. The safety net will still  be intact and government (and other employees) will not be w3ithout jobs or the fear of losing them. And the simultaneous increase in taxes on the very wealthy will help0 to keep deficits within bounds. Such an increase will also help to reduce the emotional aspects of our wild gap between those at the peak of the wealth pyramid and those at its base.

It makes one wonder if the real aim of those proposing austerity is not getting the economy back on its feet, but using the crisis for other purposes. The real purpose of their fight is to eliminate, or at least slash, our social programs.

Are they trying to create a deficit panic to increase their number of supporters? It is highly unlikely their motive was ever economic. It must b e political.

Are they deliberately ignoring the fact that deficits under Reagan increased by a higher percentage than  we are now experiencing? Remember, during that period the highest tax  bracket was reduced 60 percent.

Surpluses and good economic times were inherited from Clinton by Bush in 2001; deficits and near depression were inherited by Obama from Bush in 2009.

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