America’s fledgling economic recovery is being threatened by “obsessive concern with cutting deficits that has infected both parties,” a group of 350 economists wrote in a letter to lawmakers this week. Instead of focusing on deficit-reducing austerity measures that will do nothing to fix the “mass unemployment, rising poverty, and declining wages” that are holding back the recovery, Congress should focus on public investments that will boost job and economic growth, the letter states:
Yet too many in Washington are fixated on cutting public spending to balance the budget, not on how to put people back to work and get our economy going. There is no theory of economics that explains how we can deflate our way to recovery. Businesses are not basing investment decisions on how much Congress cuts the debt in 2023. As Great Britain, Ireland, Spain and Greece have shown, inflicting austerity on a weak economy leads to deeper recession, rising unemployment and increasing misery. [...]
The budget hawks have the sequence backwards. Public outlay for jobs and recovery come first, growth is restored, and revenues follow. Budget cuts in a deep slump lead only to a deeper slump.
Austerity measures have plagued Europe in recent years, and the so-called “fiscal cliff” — the spending cuts of tax increases that could take place at the end of the year — would implement an even larger austerity package than European countries have implemented. The economists called for a different approach, telling lawmakers to invest in the nation’s faltering infrastructure, to reverse the decline in public sector jobs, and to increase the affordability of higher education.
President Obama proposed a package that would have accomplished many of those goals in 2011. The American Jobs Act would have invested in infrastructure and provided aid to states to prevent layoffs of teachers, firefighters, and police officers, and it would have both boosted economic growth and created roughly one million jobs, according to economic estimates. Republicans blocked the bill from passage in both the Senate and the House of Representatives.
To pay for such investments, the economists suggested a solution that has been anathema to Washington lawmakers: borrowing money at historically-low interest rates available to the government right now. Congress, the economists said, should also “stimulate recovery without increasing deficits by increasing taxes on the wealthy and pumping the proceeds directly into the economy.”