Ask an average American what the leading economic problem of our time is, and the answer will come back: jobs and the lack thereof. Ask most elected officials and media mavens the same question, and theyll respond: the federal budget deficit and the long-term national debt.
The disconnect between what ordinary people see as critical and what their leaders view that way is the great unspoken divide in our politics; it transcends party and ideology, and sits at the heart of the sullen and somber mood that overlaps public life and threatens to permanently unsettle it.
In July, as official unemployment edged its way up to 9.2%, Washingtons political class was obsessed with the national debt limit and absorbed in determining what areas of government spending should be cut, and by how much, to deal with the issue. The debt ceiling has never been a problem before; its been routinely raised on a bipartisan basis dozens of times over recent decades. But that was before debt reduction went from being a Republican policy preference to a secular religious belief on the Right, something worth crippling the Government to achieve.
The fanaticism of tea-party Republicans regarding the debt limit (their determination to make it hostage to reduced federal spending and deficit reduction) was not surprising given their rhetoric since the 2010 elections. More surprising, indeed shocking, was the willingness of Democrats, especially in the White House, to seek an accommodation by offering far-reaching budget reductions of their own.
And not just any budget reductions. For the first time, a Democratic president put Social Security, Medicare, and Medicaid up for discussion, reportedly offering to permanently reduce annual pension COLAs and raise Medicare eligibility from 65 to 67 years, all in pursuit of a grand bargain with the GOP.
As this is written, entitlement cuts remain speculative; they may or may not happen. But by raising the possibility, by tentatively offering to barter parts of Americas social-insurance patrimony in exchange for minor revenue enhancements (mainly a closing of some tax loopholes), Barack Obama signaled that hes a different kind of Democrat. He doesnt regard the entitlements as his partys sacred trust, the core of its identity; rather, he sees them as ordinary government programs, programs it would be preferable to maintain, but not programs considered off limits to substantive change.
This is a major seismic shift for the Democratic party. Until now, protection of Social Security, Medicare and Medicaid was part of the Democratic DNA. Thats still true for older Democrats in general and progressive Democrats in particular, those who revere the memory of the New Deal and remember the battles of the Great Society. But President Obama, who came of age under Reagan, recoils instinctively from the pejorative tax-and-spend liberal. He and his generational soulmates may give lip service to their partys social inheritance and may seek to preserve large parts of it, but they dont regard it as sacrosanct; its not why theyre Democrats.
Government spending overall falls into the same category. In the past, Democrats were Keynesians when it came to economic policy. Hard times meant federal deficit spending to stimulate consumer demand and create the conditions for growth. This was tried in 2009-10 successfully, as far as it went and then quickly abandoned.
Deficit hawks at heart, policymakers in the Obama administration were never fully committed to an aggressive pump-priming program such as was called for by congressional liberals; they acquiesced instead in a conservative stimulus (40% tax cuts) shaped in large part by Blue Dog Democrats and Republicans. Now, even that is by the board.
The president, his cautious centrist instincts reinforced by last Novembers chastening elections, has since initiated a full-scale policy retreat and chosen to fight on enemy turf for the remainder of his term. The conservative economic argument, the notion that deficit reduction and debt elimination are what the Government most needs to do, is now the position of the White House and the consensus position in Washington, even among erstwhile liberal Democrats. Budgetary austerity, the anti-Keynesianism, is the order of the day, and President Obama is preparing to present himself to the 2012 electorate as the deficit-cutter in chief.
The president, who has always felt more comfortable as leader of the spending-averse political independents than of the big-government Democrats, could have formulated a campaign based on a defense of the entitlements against the Ryanesque barbarians of the Right, or (equally important) one geared to developing imaginative federal initiatives for job creation. He will do neither; he will campaign instead on what he evidently hopes will be a signature bipartisan accomplishment in the deficit-debt arena, leaving as his historical legacy trillions of dollars in reduced federal spending and maybe a balanced budget for the ages.
Its unclear what any of this will do for seniors hoping to hang on to their Social Security and Medicare, or the long-term unemployed desperate for jobs. But then, neither group is very important inside the Washington Beltway these days. Seniors are considered selfish oldsters out for themselves. And jobseekers, including the legions of public workers soon to face austerity-induced pink slips? Well, its better not to think about them, since the will does not exist to address their plight anyway.
Remarkably, the Beltway posture on joblessness is to ape contemporary Western Europe, particularly Britain, and apply Herbert Hoovers failed austerity measures from the Great Depression: cut taxes, reduce spending, balance the budget, and wait for the market to solve the problem in its own time. As a deficit-obsessed Hoover insisted in 1931, oblivious to the unemployment surging around him, Nothing will contribute more to the return of prosperity than to maintain the sound fiscal position of the Federal Government.
Meanwhile, if deficit cutting and debt reduction soothes Wall Street and restores its confidence somehow, its bonus babies already appear abundantly confident a spontaneous regeneration of jobs may miraculously materialize sooner rather than later. In the interim, belt-tightening for its own sake will be morally beneficial to spendthrift America, and well all be better off in the long run as a result, including the jobless.
But as Lord Keynes observed many years ago, faced with similar obtuseness, In the long run, we are all dead.
Wayne OLeary is a writer in Orono, Maine, specializing in political economy.
From The Progressive Populist, September 1, 2011
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