The Austerity Trap and the Jobs Deficit

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The dire threat facing America, according to Mitt Romney and Republicans this week, is debt, not mass unemployment.

We face "a prairie fire of debt," Mitt Romney warned in Iowa. Debt is "a grave threat to freedom," intoned House Speaker John Boehner in Washington, while threatening to hold the country hostage again over raising the debt ceiling in December.

In the Senate, Republicans forced votes on the House Republican budget that would gut Medicaid, cut all of the domestic services of government by one-third, enact deep cuts in food stamps, college grants and loans and more. (Even five Republican senators -- including two in competitive races -- couldn't stomach that).

There are only two problems with this. Reducing deficits isn't actually the first priority of Romney or Republicans. And the plans they champion will surely cost jobs, and most likely add to the debt burden.

Before dealing with the "prairie fire" that threatens the nation, Romney and Republicans want to add fuel to the flames. Their first priority is spending more money on the military and collecting less money from the rich and the corporations.

Romney's tax plan would cut revenue by some $4.9 trillion over a decade, less some unspecified loophole closings. Millionaires would pocket an average tax cut of $250,000 and those making $10,000 to $20,000 per year would end up paying an average $174 more in taxes.

If Social Security and Medicare were protected for those near retirement, as Romney sometimes suggests, then the domestic side of government -- everything from the FBI to food safety to Medicaid and food stamps -- would have to be cut by over one half in 10 years. Romney can sell that plan only by denying its effects.

This Republican extremism tempts Democrats to offer alternative plans for austerity. Because Democrats are prepared to raise taxes on the rich and put a lid on military spending, they can reduce deficits without ending Medicare or eviscerating all government services.

Their position of "shared sacrifice" is much more popular in the polls. Two-thirds of Republicans support a mix of spending cuts and tax hikes to reduce the deficit. And in any "grand bargain," the President can put everything on the table, and expose Republican hypocrisy on deficits and extremism on taxes. Many Democrats relish a face-off on austerity.

But arguing about austerity is a trap -- because what the economy needs is jobs and growth.

The best deficit-reduction program is to put people to work. Americans would prefer to cash paychecks and pay taxes than to collect unemployment insurance and rely on food stamps. When people go back to work, government revenues go up and expenditures go down. No measure will do more to reduce deficits. A full employment economy erases more than a third of the deficit. With a stronger workforce, we could focus on the real source of our long-term debt problem: the soaring costs of our broken health care system.

But when Democrats focus on the austerity debate, they get tongue-tied about jobs.

With the Federal Reserve already keeping interest rates near zero, there are only two major theories about how to generate job growth.

One view is what has infamously become known as the oxymoronic "expansionary austerity." The argument is that if you cut spending, taxes and deficits and roll back regulations, businesses will gain the confidence to invest and hire.

The alternative suggests that business owners don't lack confidence; they lack customers. With mass unemployment, businesses sit on profits; the rich move money elsewhere. So the government must act to put people to work.

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