Bemusing the Deficit

I’ve been struck by the wave of austerity capturing not only American politics but politics across the globe. Not only has the Senate failed to pass an extension of unemployment benefits and aid to states, the post-mortem G8/G20 headlines were that the world’s leaders would primarily be focused on deficit/debt reduction as opposed to additional large overtures to stimulate the economy.

Deficit hawks or Austerians seem to be winning the day! Don’t get me wrong, deficits and the debt does matter. But the preoccupation with the deficit now is ill placed. Paul Krugman in the NYTimes warns of a Third Depression. The Times also runs a piece detailing the effects of “belt tightening” in Ireland. The key graphs are below…

As Europe’s major economies focus on belt-tightening, they are following the path of Ireland. But the once thriving nation is struggling, with no sign of a rapid turnaround in sight.

Nearly two years ago, an economic collapse forced Ireland to cut public spending and raise taxes, the type of austerity measures that financial markets are now pressing on most advanced industrial nations.

There’s very little to possibly lose from additional government spending. But if governments turn their attention away from reviving the still fragile economy the consequences could be disastrous. Democrats and Congress can’t get weak knees now.

This all could have tremendous generational impacts. Recent college graduates entering the job market now in the midst of recession will earn less than graduates who enter the job market in better economic times. And consider that young workers are beset with new and challenging problems. Student debt, declining wages, widening inequality, rising costs etc. etc. etc.

The most recent jobs would have had an only marginal impact on the deficit. It just doesn’t make any sense for Democrats to get timid now when it comes to the economy. Debates over the debt and deficit are often made with future generations in mind. All of this profligate spending now jeopardizes the standard of living of future generation, the meme goes. Well, I’m sure young people appreciate that concern. But what young people really need right now is for the Congress to focus on creating jobs and stimulating growth, so that young people will actually have an economic future worth looking to.