"...the economy is running on the fumes of the investments we made in public goods decades ago." -- Prosperity Economics: Building an Economy for All
As the Mongol army swept across the Asian steppes in the 13th century, psychological warfare was one of their most powerful weapons. Looking much like their victims, Mongol spies easily infiltrated towns in the army's path to foment panic. "The Mongols are coming! The Mongols are coming! They kill the women and rape the men! The Mongols are coming!" Just as the Mongols hoped, many towns surrendered without a fight.
Come to think of it, the relentless psychological messaging from Washington sounds a lot like that. Austerity. Fiscal cliff. Debt crisis. America could go the way of Greece. America is broke. Grand Bargain. Surrender Dorothy.
In 1999, the same sort of Very Serious People told Americans that the Glass-Steagall Act was "obsolete" and "outdated"; they passed the Gramm-Leach-Bliley Act that granted leave for banks to become "too big to fail." In 2001, Very Serious People promised Americans that tax cuts for the rich would provide jobs for middle class families. In 2003 -- after those jobs didn't appear -- Very Serious People cut taxes again, and made the same empty promise. In 2005, Very Serious People told Americans that Social Security was broke and they should hand over their retirement savings to Wall Street. In 2008 ... well, you know about 2008. In 2013, Very Serious People will be peddling the same austerity cure that is sending England back into recession. But don't you worry any, Middle-Class America. Even in recession the rich get richer.
Washington’s Very Serious People now believe the United States of America is backed into a corner and against the ropes. Cut Medicare. Cut Medicaid. Cut Social Security. Privatize public assets. Expand the military. (You know, austerity.) If they ever hope to survive their bloody match with The Great Recession, Americans who have already taken a beating should cover up in a defensive crouch. Washington's Villagers calls this weak-kneed strategy "serious," and “bold and exciting.” The pundits, the Pete Peterson Foundation, the Simpson-Bowles commission, and so-called fiscal hawks want to throw in the towel on the American Dream.
Amidst the austerity chorus comes a growth-based alternative, Prosperity Economics: Building an Economy for All, a new report by Yale professor Jacob Hacker and Nathaniel Lowenthiel. Hacker is the author of Winner-Take-All Politics, The Great Risk Shift, and Off Center:
This report lays out an alternative to austerity economics, one based on our history, the successful experiences of other nations, and recent currents of research and theory in economics and allied fields. We call this model “prosperity economics.” Its central conclusion is that there is no inevitable trade-off between creating a strong, dynamic economy and fostering a society marked by greater health, broader security, increased equality of opportunity, and more broadly distributed growth. To the contrary, societies that cultivate a wider distribution of the returns from increasing social wealth are the ones that flourish economically.
When all members of a society share in the rewards of advancement—from better health to greater political freedom, from basic economic security to greater upward mobility—society is more likely to prosper in a sustained way. And when the government plays an active role in the economy through investments in education and scientific research, economies are more dynamic and innovative.
Digby writes, "If Europe has shown us anything it's that the idea of the "confidence fairies" coming to the rescue once the government enacts an austerity agenda is a fantasy." Like trickle down economics, austerity has been tried and it has failed. What we know works is what many of us grew up with. It was an expansive vision that brought America interstate highways where there were none, technical schools and other public infrastructure that underpinned America's prosperity of the last half century. But we got soft. We lost our edge. We got too greedy. We paid a price.
"Our society rightly celebrates entrepreneurs who innovate and produce," Hacker and Lowenthiel write. "Yet we should not forget that their success is possible because American society has historically invested in the broad preconditions that enable their work. Today, however, the economy is running on the fumes of the investments we made in public goods decades ago. With our infrastructure crumbling and our basic science investments dwindling, we need to refill the tank—or risk stalling on the side of the global economic highway."
Entrepreneurs know this, that the time to invest is now, when money is cheaper than it has been in decades. In general, they have not because consumer demand -- two thirds of gross domestic product -- is weak. To paraphrase Charlton Heston, financially strong consumers spend much. The weak spend little. The bankrupt spend none. So among other measures, Prosperity Economics calls for "immediate action to jump-start our sagging economy" through infrastructure spending on highways, schools, civil engineering and public utilities. Spending that puts people back to work and money into consumers' hands.
Two presidential candidates and two parties this fall will make their cases for competing visions of America's future. But judging by the timid talk coming from both side of the aisle in Washington, that stunted, shrunken future will be either austerity or austerity lite.
Cowering in the corner is not the American spirit. Americans don't quit and they don't retreat. It is time to reinvest and rebuild America's economic strength for the fight ahead. Let's get strong now.
(Cross-posted from Scrutiny Hooligans.)