President Obama has chosen to fight fire with gasoline.
Republicans want America to believe the economy is still lousy because government is too big, and the way to revive the economy is to cut federal spending. Republican Speaker
Obama poured gas on the Republican flame by proposing a 2012 federal budget that cuts the federal deficit by
That means the Great Debate starting this week will be set by Republicans: Does Obama cut enough spending? How much more will he have to cut in order to appease Republicans? If they don't get the spending cuts they want, will Tea Party Republicans demand a shutdown?
Framed this way, the debate invites deficit hawks on both sides of the aisle to criticize Democrats and Republicans alike for failing to take on
It's the wrong debate about the wrong thing at the wrong time.
But the 1995 playbook is irrelevant. In 1995 the economy was roaring back to life. The recession of 1991 had been caused (as are most recessions) by the Fed raising interest rates too high to ward off inflation. So reversing course was relatively simple.
In 2011, most Americans are still in the throes of the Great Recession, which was caused by the bursting of a giant debt bubble. The Fed can't reverse course by cutting interest rates; rates have been near zero for two years.
Big American companies are sitting on almost
The Republican bromide -- cut federal spending -- is precisely the wrong response to this ongoing crisis, which is more analogous to the Great Depression than to any recent recession.
The best way to revive the economy is not to cut the federal deficit right now. It's to put more money into the pockets of average working families. Not until they start spending again big-time will companies begin to hire again big-time.
Don't cut the government services they rely on -- college loans, home heating oil, community services and the rest. State and local budget cuts are already causing enough pain.
The most direct way to get more money into their pockets is to expand the Earned Income Tax Credit (a wage subsidy) all the way up through people earning
Make up the revenues by increasing taxes on incomes between
It's called progressive taxation.
The lion's share of America's income and wealth is at the top. Taxing the very rich won't hurt the economy. They spend a much smaller portion of their incomes than everyone else.
Sure, take some steps to cut federal spending over the longer term. Cut the bloated defense budget. Tame the growth in health-care costs by allowing the federal government to use its bargaining clout -- as the nation's biggest purchaser of drugs and hospital services under
But don't believe for a moment that federal spending cuts will get the economy growing soon. They'll have the opposite effect because they'll reduce total demand.
The progressive tax system I've outlined will get the economy growing again. This, in turn, will bring down the ratio of the debt as a proportion of the total economy -- the only yardstick of fiscal prudence that counts.
But we can't get to this point -- or even have a debate about it -- if Obama allows Republicans to frame the debate as how much federal spending can be cut and how to shrink the deficit.
The president has to reframe the debate around the necessity of average families having enough to spend to get the economy moving again. He needs to remind America this is not 1995 but 2011 -- and we're still in a jobs crisis brought on by the bursting of a giant debt bubble and the implosion of total demand.
Available at Amazon.com:
Read the latest political news.
- The Great Jobs Recession Goes On
- America's Corporate Recovery Is More Fragile Than You Think
- Impending Debate Over Spending Cuts Has Nothing to Do With Reviving Economy
- Pruning Farm Subsidies
- The Wealth Gap Around the World
- Obama's Budget Falls Short of Deficit Panel Recommendations
- Chicken Little and the Debt Ceiling
- 'Latin American Decade' or Wishful Thinking?
- Housing Crisis Represents the Greatest Threat to the Recovery
- Sensible Budget Must Include Investment in Our Future
- Bubbles, Bubbles Everywhere
- Davos Man and the Real World
- From Davos to D.C., A Crossroads Moment for the World
- Is Obama's Pro-Business Rhetoric for Real?
- 10 Best Cities to Get a Job
- Our Aging World and How It Drives U.S. Economy
- The Sorry State of Our Economic Union
- 10 States With the Largest Budget Shortfalls
- Western Economy on Suicide Watch?
- Latin America's Economic Bonanza May Be Short-Lived
- The Euro: Until Death Do Us Part
- The Stealth Attack on American Education
- The Shameful Attack on Public Employees
- Jobless Rate Falls But Employment Remains Bleak
- Why the Rich Are Getting Richer
- The Good News About Gas
- New Era of Bipartisanship in 2011? No Chance
- Why Not Soak the Rich?
- The American Jobs Emergency Requires Action
- The President's Tax Deal Is Just More Trickle-Down Economics
- The Need to Protect Our Aging Workforce
- Danger of a Global Double Dip Recession Is Real
- Americans Feel Anxiety as Millions Fall Out of The Middle Class
- Documentary Reveals True Crime Behind Great Recession
- America Marches to a Different Tune -- Its Own, of Course
- America's Exceptional Poverty
- America's Deficit Disorder
- Congress Must Help Struggling Families Not Millionaires
- Sarah Palin's Economy
- Selling the Economic Recovery
- Jobs and Real Estate Tethered for Better or Worse
- The Consequences of Fiscal Irresponsibility
- America's Two Economies: Why One Is Recovering and the Other Isn't
- Michele Bachmann's Plan to Fix the Economy
- Achieve Balanced Federal Budget Through Spending Restraint
- Unemployment Trumps the Budget Deficit
- GDP Now Matters More Than Force: Policy for the Age of Economic Power
- What Population Growth and Decline Means for the Global Economy
- Why the Retirement Age Is Increasing
- Dr. Bernanke's Magic Elixir for the Economy
- How Quantative Easing 2 Could Affect Your Money
- QE2: Potential Winners and Losers
- Globalizing the Energy Revolution
- Obama's First Stand
- The Politics of Budget-Cutting
- America Checks Into Rehab
- Interest Rates Drop Again But Will Housing Market Perk Up?
- G20 Summit: Hitting Singles in Seoul
Impending Debate Over Spending Cuts Has Nothing to Do With Reviving Economy | Politics
(c) 2011 Robert Reich