Austerity Kabuki

Politics To understand just how terrible the fiscal deal is for the Democrats and for the country, you have to start with the realization that we shouldn't even be talking about deficits. We are in a demand crisis, and that means we should be focused on creating jobs and building the economy, taking people from need to opportunity, and from needing government benefits to being taxpayers. Paul Krugman warned about it almost exactly three years ago, before deficit madness had even begun:

The next G.D.P. report is likely to show solid growth in late 2009. There will be lots of bullish commentary ' and the calls we're already hearing for an end to stimulus, for reversing the steps the government and the Federal Reserve took to prop up the economy, will grow even louder.

But if those calls are heeded, we'll be repeating the great mistake of 1937, when the Fed and the Roosevelt administration decided that the Great Depression was over, that it was time for the economy to throw away its crutches. Spending was cut back, monetary policy was tightened ' and the economy promptly plunged back into the depths.

The Obama stimulus had stopped the economic freefall, and likely prevented a deep depression, but it wasn't nearly large enough to spark a real recovery. We needed another stimulus, not cutbacks.

So the odds are that any good economic news you hear in the near future will be a blip, not an indication that we're on our way to sustained recovery. But will policy makers misinterpret the news and repeat the mistakes of 1937? Actually, they already are.

The Obama fiscal stimulus plan is expected to have its peak effect on G.D.P. and jobs around the middle of this year, then start fading out. That's far too early: why withdraw support in the face of continuing mass unemployment? Congress should have enacted a second round of stimulus months ago, when it became clear that the slump was going to be deeper and longer than originally expected. But nothing was done ' and the illusory good numbers we're about to see will probably head off any further possibility of action.

And the effect did begin to fade, and the economy started to stumble, and unemployment and home foreclosures remained dangerously high, just in time for the Democrats to get pounded in the 2010 midterm election. Independents favored the Republicans by 15 points, citing the economy as their number one issue. A month after that warning, Krugman was even more worried:

So why the sudden ubiquity of deficit scare stories? It isn't being driven by any actual news. It has been obvious for at least a year that the U.S. government would face an extended period of large deficits, and projections of those deficits haven't changed much since last summer. Yet the drumbeat of dire fiscal warnings has grown vastly louder.

To me ' and I'm not alone in this ' the sudden outbreak of deficit hysteria brings back memories of the groupthink that took hold during the run-up to the Iraq war. Now, as then, dubious allegations, not backed by hard evidence, are being reported as if they have been established beyond a shadow of a doubt. Now, as then, much of the political and media establishments have bought into the notion that we must take drastic action quickly, even though there hasn't been any new information to justify this sudden urgency. Now, as then, those who challenge the prevailing narrative, no matter how strong their case and no matter how solid their background, are being marginalized.

And fear-mongering on the deficit may end up doing as much harm as the fear-mongering on weapons of mass destruction.

That was where it all began. We should have been focused on a second stimulus and creating more jobs, and even if the Democrats hadn't succeeded in getting anything through Congress they'd at least have been having the right conversation, and they would have had a strong argument heading into the 2010 elections' that they had tried to do more but the Republicans had stopped them. Instead, the Democrats caught deficit fever, and President Obama decided to play the Republicans' game on the Republicans' home field, when instead of pushing for more stimulus he instead decided to appoint a deficit commission, and then appointed the scurrilous deficit hawks Alan Simpson and Erskine Bowles to head it. As if anyone anywhere could possibly have wondered what they would come up with.

The fiscal games of the past couple years have proved the basic dishonesty of our economic political discourse. Let's be clear: No one really cares about the deficit. The Republicans never had any credibility on deficits, and now the Democrats have been playing a similar game. If anyone actually cared about deficits, they'd have let the Bush tax cuts expire, then passed the Obama middle class tax cuts. They wouldn't have wrangled over how wealthy someone has to be to get a tax cut that the wealthy don't need, when there are so many tens of millions of Americans who are in genuine need, they'd have said we need to balance the books, and we won't make any excuses. The middle class would have kept their tax cuts because they need the money and they are more likely to spend it, thus further pumping the economy. And no one would have even raised the issue of Social Security, which has absolutely nothing to do with the deficit. You want to know an easy trick for figuring out if a deficit hawk is flatly dishonest? They will discuss Social Security. It's a game. A ruse. A lie.

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