End The Austerity Loop
Democrats are failing to heed the cautionary tale about how their obsession with deficit reduction hurts the economy and harms their political prospects.
By David Sirota
As Americans continued to starve, face evictions and die during this week’s congressional showdown over desperately needed stimulus legislation, former President Barack Obama weighed in by trying to erase a historical cautionary tale that already seems to be happening again.
Looking back at the economic crisis during his first term, Obama told New York Magazine that he “was full Keynesian at that time in terms of trying to get as much stimulus out the door as quickly as possible” and that his critics were wrong to assume that the Democratic Party — which had full control of Congress — backed a smaller-than-necessary stimulus bill “based on some concerns about deficits at a time when that should have been the last thing we were worrying about.”
“At the end of the day I had to get Ben Nelson’s vote, I had to get Arlen Specter’s vote, and I had to get Susan Collins’s vote — otherwise, I’m getting nothing,” Obama said, referring to conservative Democratic and Republican senators. “I’m making a decision to go ahead and take three-quarters of a loaf rather than have a lengthy fight for the whole loaf that even if I win could delay things significantly and hamper our ability to right the ship.”
The familiar message from Obama to Democratic Party voters is the same one the party’s apologists offer up today: Budget capitulations are not a product of ideological fealty to an austerity agenda, they are only a reflection of political reality — so stop pushing, start falling in line and be pragmatic.
On its face, it is a compelling tale that makes sense if you read nothing else and forgot what actually happened. The problem is, it omits a key detail that collapses the entire story and exposes the austerity ideology at play: In roughly the same time period, Obama and his party congratulated themselves for passing legislation that — in the name of deficit reduction — rescinded the White House’s authority to spend hundreds of billions of dollars to help Americans who were being thrown out of their homes.
Called the “Pay It Back Act,” the Democratic bill reduced the size of the Troubled Asset Relief Program (TARP) just after it had bailed out the banks, but just before a new president might decide to use the money for what it was originally supposed to do: help homeowners.
Amid all the pain and suffering during the financial meltdown, Politico reported in 2009 that “the White House has signaled that it wants to dedicate 2010 to deficit reduction, and putting the bulk of TARP funds into paying down the debt could please budget hawks on the Hill.”
Congressional Democrats the next year issued press releases lauding themselves for passing a bill to prevent the president from using the money to help people. The legislation reduced the amount of TARP funds available to be deployed, and required proceeds from the fund’s securities to be used “for the sole purpose of deficit reduction.”
Obama signed the bill into law as part of the Dodd-Frank financial reform legislation, which was finalized just after the White House launching a commission to slash Social Security in the middle of the Great Recession. A few months later, Democrats were — in Obama’s own words — “shellacked” in the midterm elections. His administration then doubled down on austerity, quickly releasing a proposal for Social Security benefit cuts and pressing the Republican Congress to enact some of them.
Meanwhile, millions suffered through an economic recovery that “was the slowest in post-World War II history, and the degree of fiscal austerity can entirely explain its slowness,” the Economic Policy Institute reported.
The result was a popular backlash that ultimately created the conditions for the rise of Donald Trump.
Sadly, this is all lost history deliberately flushed down the memory hole in service of both helping Obama build his pristine media brand and pretending Democrats have not played a willful role in creating the destructive politics of austerity.
And now, with no societal recollection of the debacle, this same cycle seems to be starting anew — and the broad strokes are eerily familiar.
A new administration entering office during an economic crisis that requires deficit spending. A Republican Party that instantly transitions from spending on corporate bailouts to pretending it cares about debt. A Washington-anchored Democratic Party that fetishizes deficit reduction so that cable news pundits will portray them as sober-minded fiscal hawks, rather than New Dealers. Wall Street executives and bondholders celebrate, serfs outside the palace walls starve, a counterrevolutionary backlash follows and the cycle starts anew.
This is the Austerity Loop that seems to be starting over again — proving that when we forget our past, history may not exactly repeat itself, but it tends to rhyme.
“They Spent Months Signaling Their Willingness To Climb Down Off Key Demands”
As in the 2008-2009 period, we face an unprecedented economic crisis, prompting Republicans to disingenuously pretend to be fiscal conservatives, and Democrats to follow their lead rather than pivoting to a New Deal posture.
Democrats’ stimulus negotiations tells the larger tale: After eagerly signing on to help Trump pass legislation creating a $500 billion corporate slush fund, the party led by golf-clapping master strategist Nancy Pelosi negotiated a potential $3.4 trillion economic rescue package down first to $1.9 trillion.
As poverty and mass starvation skyrocketed, Pelosi’s Democrats then rejected Trump’s offer of $1.8 trillion and negotiated further down to $348 billion. Now, Congress is down to a mere $188 billion in new proposed spending — cue tweets of Pelosi putting on sunglasses!
Vox reported that the bill released Monday did not “include another round of $1,200 stimulus checks — a very popular provision that was left out to reduce the cost of the package.” But hey, at least it included a massive bailout for profitable defense contractors. Late Wednesday, there was word that there may be some direct stimulus aid included in the bill, but the checks would be smaller and paid for with more austerity — specifically, by slashing unemployment benefits.
“Dems did basically none of the things you'd normally want to do to pressure the other side,” tweeted Adam Jentleson, who advised former Senate Democratic Majority Leader Harry Reid. “Instead of anything resembling a pressure campaign on popular policies like the checks, they spent months signaling their willingness to climb down off key demands.”
Sen. Bernie Sanders put it more bluntly: “What kind of negotiation is it when you go from $3.4 trillion to $188 billion in new money? That is not a negotiation. That is a collapse.”
As Sanders now gets the cold shoulder from conservative Democrats and is left to work with freshman Republican Sen. Josh Hawley to push for more direct aid, his analysis is unnecessarily polite. The Vermont senator’s own experience successfully fighting Democrats’ past push to cut Social Security suggests this is not an inadvertent collapse, but instead a deliberate and sinister assertion of the party’s austerity ideology that Obama pretended doesn’t exist.
It is an ideology with the elite in mind: Democrats fear being tagged as spendthrifts by millionaire MSNBC hosts, they are afraid to call out GOP hypocrisy on spending, and they refuse to embrace the kind of Keynesianism that even Trump himself championed.
Since the Clinton era, Democrats have been zealous followers of the austerity religion. They aim to satiate Wall Street, bondholders, austerian think tanks and Washington pundits who fetishize balanced budgets — and who are more than happy to bail out corporations while reducing the national debt through huge cuts to programs that provide the most basic necessities of life.
“The Pantry Is Going To Be Bare”
When Biden is sworn in as president, he could end this vicious Austerity Loop. He could follow through on his campaign promises for robust investments in infrastructure, climate mitigation and an expansion of Social Security, which would boost economists like Stephanie Kelton and others who have been working to try to break the vise grip that anti-deficit ideologues have maintained on American politics for decades.
But while Biden did momentarily tout deficit spending at the very end of the campaign, let’s be honest: There are signs that when it comes to austerity politics, he remains much more focused on delivering on his promise to make sure that nothing will fundamentally change.
First, there was one of Biden’s top aides telling Washington reporters that Trump-created deficits means “the pantry is going to be bare” and “we’re going to be limited” in what the government can spend money on, which is nonsense.
Then Biden reportedly pressed congressional Democrats to accept a far-too-small stimulus package, in order to appease Republicans. Of late, he has not been aggressively campaigning for the $1,200 stimulus checks — he has been busy asking for $1 million corporate checks for his Zoom-call inauguration.
Biden will be entering office just after Trump Treasury Secretary Steve Mnuchin pulled a spiteful redux of Democrats’ previous move on TARP by preemptively rescinding the executive branch’s authority to deploy more resources to boost the economy. Handcuffed by a narrowly divided Senate, the new president could counter by using executive authority to cancel student debt and expand Medicare — both of which could inject billions of dollars into the economy.
And yet, Biden is already suggesting that he is looking to avoid moves that might spark a legal clash over executive power. Indeed, rather than saying he will do whatever it takes to help millions of Americans, he recently told civil rights leaders that “executive authority that my progressive friends talk about is way beyond the bounds.”
At the same time, he has ruled out pushing Medicare for All during a burgeoning health care emergency, even as a new Congressional Budget Office report shows the program could save America $650 billion every year.
As for appointments, Biden’s economic team includes nominees with a long record of pushing austerity.
There is Treasury Secretary nominee Janet Yellen — who has at times supported some necessary deficit spending and financial regulation, but who previously pushed spending cuts, called the debt “unsustainable,” and co-authored an op-ed calling for “adjustments in both spending and revenue” for Social Security.
There is Biden’s choice to chair the White House Council of Economic Advisers, Cecilia Rouse — who pushed spending cuts and balanced budgets in 2012.
There is BlackRock executive Brian Deese set to run the National Economic Council — a job he comes to after serving as an Obama official promising Congress “that his top priority would be working on a ‘comprehensive deficit reduction agreement,’ which would include ‘entitlement reform,’” according to the American Prospect.
And there is Office of Management and Budget nominee Neera Tanden, who touted Social Security cuts after Republicans won Congress in 2010.
Perhaps all of this would be less troubling had Biden been a staunch defender of programs like Social Security — but he has been the opposite. For decades, Biden has been one of the Democratic Party’s most ardent proponents of austerity politics to the point where he gave speeches on the Senate floor bragging about his work with Republicans to try to cut Social Security.
This record was briefly scrutinized during the Democratic primary, but Biden brazenly lied his way through the controversy, the national press laughed about it, pundits downplayed it, partisan Democrats scoffed at it, and now here we are with a president and a Senate Majority leader whose Venn diagram shows common ground on one big policy: slashing the government’s already meager spending on the tattered social safety net.
“Turning The COVID Recession Into A Depression”
Democratic Reps. Alexandria Ocasio-Cortez, Ilhan Omar, and Rashida Tlaib seem to sense the dangerous resurgence of austerity politics, and in response they mounted a pressure campaign demanding Biden avoid giving a top White House job to Bruce Reed — the executive director of Obama’s commission to cut Social Security.
“Putting someone who will prioritize paying down the deficit ahead of all other concerns in charge is a recipe for cutting our earned benefits and turning the COVID recession into a depression,” they wrote in an open letter.
But austerity politics quickly reared its head, when some of Washington’s most servile courtiers expressed shock, dismay and horror that these lawmakers would dare challenge the orthodoxy.
“What a weird fight to pick,” tweeted professional palace stenographer Ryan Lizza. “Reed is being attacked by the left for serving as a staffer on a bipartisan blue ribbon commission years ago rather than being applauded as one of the key policy architects of the most progressive agenda in modern history.”
The campaign against Reed was ultimately successful — he was passed over for a top job, but it went to Tanden instead, making the victory feel monumentally smaller.
Today, austerity extremism remains embedded in the Democratic House caucus, thanks to Pelosi. She has championed so-called PAYGO rules that require new expenditures to be paid for with budget cuts, thereby making it almost impossible for lawmakers to deficit spend to counter an economic downturn.
“For the Congressional Progressive Caucus, the PAYGO rule should be viewed as a declaration of war against its agenda. A Green New Deal, Medicare for All, tuition-free college, and debt forgiveness would all be made less likely to succeed under this House rule,” wrote Bernie Sanders’ aide Ari Rabin-Havt. “The current Democratic majority in the House of Representatives should be willing to spend as much as possible to grow the economy.”
Warning of another Austerity Loop that replays the 2010 electoral disaster, Rabin-Havt concludes: “With a thin majority, the midterm elections will already put control of the chamber in peril. The irony is that the members who will likely push for the PAYGO rule — moderates from swing districts — are the ones who will be put most at risk by its existence. The worst political strategy Democrats could deploy over the next two years would be to go small when it comes to domestic spending.”
The politics of the situation are still in flux — Ocasio-Cortez, Omar, Tlaib and other progressive lawmakers seem determined to prevent the austerity orthodoxy from creating an electoral massacre in 2022. They and other Congressional Progressive Caucus members are right now demanding bigger checks in the final stimulus bill.
On the other side of the partisan divide, Republicans such as Hawley and Arkansas Sen. Tom Cotton have followed Trump’s lead by periodically trying to outflank Democrats and push even bigger infusions of direct aid to families during the pandemic. That could leave a Biden-led Democratic Party that seeks balanced budgets vulnerable to being cast as newfangled Hoover-like austerians sapping the lifeblood out of a battered economy.
Whatever happens in the political sphere, a replay of the Austerity Loop in the short term will have real-world consequences for millions of Americans, who desperately need some sort of financial lifeline as economic, health care and housing crises grind them into the dust.
In the long term, the stakes are even higher — the only way to try to stop a potential extinction event like climate change is to make far-reaching investments that transform our entire energy economy, food system and infrastructure. The Austerity Loop prevents that — which is why it must be broken.
Whether or not it will be remains the open question.
For a generation, rank-and-file voters have been told to eat budget cuts while the wealthy feast on tax breaks, subsidies, bailouts and other government largesse. There was another way forward during and after the financial crisis of 2008, but Democrats deliberately blocked themselves from taking that path. Now they have another chance to back countercyclical spending that helps Americans afford the most basic necessities of life.
Our country did that during the Great Depression and we can do it again, but only if Democratic leaders finally recognize the Austerity Loop for what it really is: just another scheme that deliberately perpetuates an untenable status quo.
Photo credit: Mark Wilson / Getty
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