by Joe Logan, OFU Executive Committeeman
As the global economy teetered at the point of collapse in 2008, governmental leaders in the administrations of both the out-going President Bush and the in-coming President Obama, took the types of actions which virtually all economists advocated. They made massive investments in crucial financial and industrial corporations that were deemed to be crucial to our economic survival.
No good deed goes unpunished.
Two years later, Democratic political leaders were licking their wounds, after their “shellacking” in the 2010 Congressional and statewide elections. In large part, the 2010 electoral tsunami was the result of a well-engineered PR campaign that focused almost exclusively on “excessive government spending” — and largely ignored the cataclysmic alternatives. Since then, “Budget Hawks” have ruled the roost in Congress and in many state capitols (including Ohio). Interestingly, the frenzy for budget cuts fits perfectly into the philosophy of certain Washington, D.C. ideologues, such as Grover Norquist, whose conservative “think tank”, Americans for Tax Reform, has long admonished his supporters to “starve the government” through deep budget cuts.
So, government austerity is the rule of the day. This strategy has been endorsed by both parties in the hopes that reduced federal spending would encourage private corporations to invest more in our economy. If that hoped-for cascade of corporate spending has been happening, it has not been happening here in the U.S. According to a Brookings Institution study, U.S. corporations are holding nearly $1 trillion in cash overseas, while major corporations such as the pharmaceutical firm Merck & Co. plan to allocate 90% of future investment overseas. Thus, corporate profits and cash holdings have continued to increase, but hiring and business expansions are not happening here.
Only recently, in the wake of the downgrading of U.S creditworthiness, has a critical mass of economists and opinion leaders dared to express an alternative view, – that a resurgence in investment/spending may be essential in order to avoid a double-dip recession.
Meanwhile, the federal austerity has been trickling down to state and local governments, putting pressure on agencies across the board. The road ahead seems daunting, as most of the cuts are only just beginning to be felt in the countryside, but the reductions in the government workforce is beginning to ripple across the economy, boosting unemployment and acting as a drag to hopes for renewed growth.
These cuts to local, state and federal agencies are beginning to show up in a wide range of programs. Clean water and air, safe food, support for infrastructure development are taking major hits. Such projects and investments could have kept folks working in the short term, and created a basis for future business expansion down the road. These are the types of wrong-headed ideas that can compound themselves and make any future recovery, an even steeper climb.
Governments should always be cautious about spending, but budget cuts should not be viewed as an end in themselves. Thankfully economists are beginning to speak out regarding the need to defer the budget cutting frenzy for a time when our economy can survive it.