January 2, 2013
Washington appears to think that the road to recovery for the US economy is austerity through cutting public spending ---deficit cuts, as it were, are the necessary road to recovery. It is a world of upside down politics because economy recovery and long -run growth comes from stimulus not austerity. The austerity crowd are exploiting the fiscal cliff to push their social benefit-cutting agenda that has nothing to do with the current crisis of low economic growth.
As Paul Krugman argues:
long-term economic growth hasn’t been a steady process; it has been driven by several discrete “industrial revolutions,” each based on a particular set of technologies. The first industrial revolution, based largely on the steam engine, drove growth in the late-18th and early-19th centuries. The second, made possible, in large part, by the application of science to technologies such as electrification, internal combustion and chemical engineering, began circa 1870 and drove growth into the 1960s. The third, centered around information technology, defines our current era.
We could add information technology and renewable energy.
The budget deficit ballooned in 2009 because of the recession caused by the global financial crisis. It knocked so many people out of work that tax revenues dropped to the lowest share of the economy in over sixty years. (The Bush tax cuts on the rich also reduced revenues.) As the nation slowly emerges from recession, more people are employed — generating more tax revenues, and requiring less spending on safety nets and stimulus. So the key is to get the economy growing.
One problem for the US is even though the economy is growing is that many Americans are not getting ahead no matter how hard they work, and there is an increasing concentration of income and wealth at the top.