Let’s start with some simple facts: Europe did not have an economic crash because of their socialist spending in the past. They had an economic collapse because we did. They had an economic collapse because they were as invested in the shenanigans of the financial industry as we were. How they have handled it is a cautionary tale. Germany, with a very strong economy, is calling the shots for the rest of the EU, and they have demanded budget cuts, reductions of national debts and almost no increase in tax rates (though they have allowed going after tax cheats.) “Austerity” is the way Europe has dealt with the Great Recession. They have cut government programs to the bone. In Greece, they went so far as to cut salaries retroactively, and there were people who didn’t get a paycheck so they could “pay back” their overpayments. Europe is hip deep in double-dip recessions and full-blown depressions because of austerity. Unemployment in the Euro-zone is ranging between 25% and 50%, and they count their unemployed more accurately than we do. When they are not being diverted by talk of Obamacare and taxes, manufacturers in America acknowledge that their companies cannot recover until Europe does, because they have lost their overseas markets.
Austerity not only does not create an economic recovery – it is a freaking economic disaster on top of the disaster. Yet, it is the path that the Republican Party wants the United States to take to recover from the recession they gave us.
In fiscal year 2011, the government took in $2.3 trillion and spent $3.6 trillion. That’s a $1.3 trillion gap. The whole “fiscal cliff” debate consists of how to cut the $1.3 trillion to nothing over the next ten years. In that time, we would add $6.5 trillion to the national debt, bringing it up to over $23 trillion.
Yeah, that’s about as stupid as you can get. Pat yourselves on the back for adding $6 .5 trillion to our debt. We’ve already looked at how to increase revenues through reforming the entire tax code. Now, we need to look at how we spend it.
This is the stuff that we absolutely have to spend money on and their percentage of our spending: Interest on our debt, $227 billion (6%), Medicare and Medicaid $835 billion (23%), Social Security $725 billion (20%), other mandatory which covers Federal employee pensions, the costs of the Judiciary and Legislative branches, and stuff they don’t really explain well $465 billion (13%). That leaves the Defense Department $700 billion (19%) and discretionary spending which is everything else we spend money on from Planned Parenthood to the Tea Board $646 billion (18%). The Republicans want to take most of the savings out of the discretionary stuff and some out of Medicare, Medicaid and Social Security. The Democrats want to take it out of Defense and some discretionary. The Republicans want to use a meat cleaver on the budget, while the Democrats want to use a scalpel.
To see the best way to deal with our current economy, one needs to look at history, not the history of the Great Depression, but a history much closer to the way the world is today, the end of World War II.
Harry S Truman became President on April 12, 1945 when Franklin Delano Roosevelt died suddenly early in his fourth term. He was elected for his own term in 1948. Truman oversaw the end of World War II. In 1946, Truman faced guiding America through the post-war transition. Sixteen million veterans were returning from the war. Factories that had served the war effort were closing, our national debt was 126% of GDP, Europe was devastated. The United States was in a recession, but somehow, the histories don’t record a spike in unemployment. The world was on the brink of seismic shifts in technology and political realities, with old empires folding and the new Cold War client states replacing them. We needed to grab the future without hesitation or fear.
Truman pushed through an expansion of the GI Bill that Roosevelt had started. It gave college educations and business opportunities to our veterans. He expanded the range of the FHA to help finance the housing boom needed for all those new families being formed, and began the explosion of suburbs in America. Those families needed new schools and more teachers. He put money into infrastructure and a mind-bogglingly expensive relief program for Europe, because without a European recovery we would have no markets for our products. And he did not hesitate to borrow money to jump start the process until we could sustain the costs on our own.
Remember, we had a 126% of GDP national debt? Our top tax rate had been raised from 25% to 63% when Roosevelt was elected, to pay for the programs that took us out of the Great Depression. Then, it was raised to 79%. For the war effort, it was raised to 81%, then 88%, and finally 94%. In 1946, Truman arranged for a tax break for the wealthy. The top rate was lowered to 86.45%. In 1950, it went back up to 91%. Eisenhower kept high taxes, kept all those programs and subsidies and support for our industries and businesses. He also started the interstate highway system, an infrastructure project to rival the Hoover Dam and the TVA rural electrification effort. Between them, Truman and Eisenhower oversaw the re-invention of our economy, the creation of new industries, the explosive growth of the middle class (in large part because 40% of the private sector workforce was unionized) and America taking its place as the strongest economy in the world. They took the national debt from 126% of GDP to 60% of GDP and set the stage for it to bottom out at under 40% by 1980. They cut the dollar amount of the national debt by a third. Gee whiz – high taxes didn’t kill the economy, they grew the economy by spreading the money around. It was pure classic Thornton Wilder, “Money is like manure; it’s not worth a thing unless it’s spread around encouraging young things to grow.” Truman and Eisenhower spread the manure around.
Eisenhower said something in his “farewell address” to the nation, besides his famous reference to the military industrial complex. He said, “We . . . must avoid the impulse to live only for today, plundering for our own ease and convenience the precious resources of tomorrow. We cannot mortgage the material assets of our grandchildren without risking the loss also of their political and spiritual heritage. We want democracy to survive for all generations to come, not to become the insolvent phantom of tomorrow.” For twenty years after he left office, America followed his advice. When we went to war in Vietnam, a surtax was placed on income tax to pay for the war. The economy that was invented in the 1950s held until 1980 or so. But then the world started to change again, and instead of dealing with it, instead of protecting our future, the Republicans gave us trickle-down economics, and then did it again in 2000. In 1980, when Ronald Reagan was elected, our national debt was below 40% of GDP. By the end of the Bush-Cheney administration, it was 100% of GDP. The dollar amount of the national debt rose from less than $3 trillion to over $10 trillion because of Republican policies. We had a nice little leveling off during the Clinton years, but our debt is entirely the fault of the policies of deregulation and low taxes from the Republican Party. President Obama has been blocked in every attempt to correct our course for the past four years. He does not own the additional $6 trillion in debt incurred in the past four years. That also belongs to the Republicans.
We don’t need to just recover from the Bush recession. We need to reinvent our economy again for the 21st century. President Obama has said this repeatedly, most notably in his State of the Union Addresses. And the best way to do that is to follow the example of those who reinvented it in the middle of the last century.