Austerity's Big Winners Prove To Be Wall Street And The Wealthy
Austerity advocates, like Rep. Paul Ryan,
argue their proposals will boost the economy.
WASHINGTON -- The poor and middle classes have shouldered by far the
heaviest burdens of the global political obsession with austerity
policies over the past three years. In the United States, budget cuts
have forced states to reduce education, public transportation,
affordable housing and other social services. In Europe, welfare cuts
have driven some severely disabled individuals to fear for their lives.
But the
austerity game also has winners. Cutting or eliminating
government programs that benefit the less advantaged has long been an
ideological goal of conservatives. Doing so also generates a tidy
windfall for the corporate class, as government services are privatized
and savings from austerity pay for tax cuts for the wealthiest citizens.
U.S. financial interests that stand to gain from Medicare, Medicaid
and Social Security cutbacks "have been the core of the big con," the
"propaganda," that those programs are in crisis and must be slashed,
said James Galbraith, an economist at the University of Texas.
Advocates of austerity measures have sold their proposals as a means to improve the economy.
"It is an error to think that fiscal austerity is a threat to growth
and job creation," declared European Central Bank President Jean-Claude
Trichet
in July 2010.
"We're going to cut spending to get the debt down, help create jobs
and prosperity, and reform government programs," vowed Rep. Paul Ryan
(R-Wis.), chairman of the House Budget Committee, in a
February 2011 commentary
for Real Clear Politics. Ryan would later declare that his budget plan,
with far more aggressive austerity measures than those ultimately
enacted by Congress -- including $6.2 trillion in spending cuts -- would
have
spurred $1.5 trillion in economic growth and created 2.5 million jobs.
As
for the 2010 Simpson-Bowles deficit reduction plan, it is often
described by Beltway insiders as a "centrist" proposal that could "
bring the country together" and improve the economy. In fact, Simpson-Bowles is yet
another austerity program
that would cut Medicare and Social Security while securing tax breaks
for corporations and the well-off, according to an analysis by the
Center on Budget and Policy Priorities.
Erskine Bowles, co-chairman of the bipartisan commission that worked
on the plan, is a director at Morgan Stanley, the sixth-largest American
bank and a financial institution for which the United States made huge
commitments to help it weather the economic downturn. Morgan Stanley
took $10 billion in bailout funds under the Troubled Asset Relief
Program and received more than $100 billion a day in cheap loans from
the Federal Reserve at the height of the past financial crisis.
For
weeks, Morgan Stanley borrowed more money from the Fed than the company's stock market value.
That solicitude for the profits of big corporations shows up in
Simpson-Bowles too. The plan offers multiple corporate tax reform
proposals, but one, which calls for shifting to a so-called territorial
tax system, would be especially advantageous to Morgan Stanley and other
Wall Street banks. It would allow U.S. companies to permanently avoid
paying U.S. taxes on overseas income, including money stashed in
offshore tax havens like the Cayman Islands. According to a
2008 report by the Government Accountability Office, Morgan Stanley operates 273 sub-companies headquartered in such tax havens.
While
Social Security advocates have attacked the plan, the Business Roundtable, a lobbying group for corporate CEOs, has
praised Simpson-Bowles.
So has Peter Peterson, who served as Richard Nixon's commerce secretary
before founding Blackstone Group, a major private equity firm. Peterson
has long advocated cuts to Social Security and Medicare, and he started
a think tank devoted to federal debt reduction in 2008.
"I'm a great fan of Erskine Bowles and Alan Simpson,"
Peterson told Bloomberg in 2011. "I think they're American heroes."
As
many economists predicted,
however, the austerity policies implemented after the financial crisis
have proved to be a losing proposition for the global economy. The
strong economic growth that austerity advocates predicted has not
materialized, with the United States showing only anemic improvements,
and European countries sliding back into devastating recessions.
At the same time, corporate profits in the financial industry remain
above even the levels reached at the height of the housing bubble,
according to Commerce Department data. And
elites on both sides of the
Atlantic have secured generous tax breaks, made possible in part by cuts
to social services.
In the United States, President George W. Bush's tax breaks for the
wealthiest citizens were extended, while unemployment benefits and even
food stamps have gone on the chopping block.
This tradeoff is even more apparent at the state level. In 2010, New
Jersey Gov. Chris Christie (R) opted not to make the $3 billion annual
contribution to the state workers' pension fund,
instead securing $1 billion in tax cuts
for the state's better-off residents. Wisconsin Gov. Scott Walker (R)
has similarly proposed budgets that provide tax breaks for corporations
and the rich while demanding pay and benefit cuts for middle-class state
workers.
"Austerity policies are literally a redistribution from the bottom of
the income spectrum to the top," said Dorian Warren, a professor of
political science at Columbia University and a fellow at the Roosevelt
Institute, an economic policy think tank. "In Wisconsin, both
wealthy
people and businesses got tax breaks, while middle-class and
working-class employees of the state essentially got crushed."
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Pictured: someone who's heard of Mitt Romney.
By Zach Carter
07/23/2012