What happens if you tighten your belt …
… but don’t lose any weight? You get unsightly bulges elsewhere and can’t breathe well enough to exercise.
That’s essentially the House Republican solution to the long-term budget challenge of escalating health care costs: Shift costs to individuals, and do it in a way that impedes measures that could actually help control costs in the long run.
Nevertheless, belt-tightening is the latest weight-loss fad to hit Washington, prompting Robert J. Shiller to ask in yesterday’s New York Times, “Why is there such strong political support for fiscal austerity, for government cuts and layoffs, at a time of widespread unemployment?”
Shiller thinks the reason austerity has caught on (at least inside the Beltway) is that the other side has better metaphors, like belt-tightening. His proposed alternative—”winter on the family farm“—may not resonate in a non-agrarian economy, but his point is a good one: When there’s no planting, fertilizing or harvesting being done, it’s time for infrastructure projects to make productive use of idle labor.
It’s not even necessary to increase the deficit, though this would be the quickest way back to full employment. Raising taxes to pay for infrastructure and education would still create jobs, because all the money would be spent, whereas some of the income that was taxed would have been saved. This is especially true if the taxes fall on higher-income households. These investments would also pay off in the form of a more productive economy in the long run.
Alas, Shiller notes that despite the fact that a balanced-budget stimulus was endorsed in the International Monetary Fund’s 2012 World Economic Outlook, politicians espousing such measures, such as France’s François Hollande, aren’t taken seriously. Meanwhile, extreme and counterproductive measures put forward by House Budget Chairman Paul Ryan (R-Wis.) have shifted the window of policies considered to be within the political mainstream in the United States, even though Ryan would actually reduce taxes on the wealthy and slash public investment. The House Republican budget may be a non-starter, but so too—for the time being—are balanced-budget measures to get the economy moving again.