30 Jan 2012

The Great Austerity War: What Caused the US Deficit Crisis and Who Should Pay to Fix It?

by James Crotty, Professor Emeritus, University of Massachusetts, Amherst


Rapidly rising deficits at both the federal and state and local government levels, along with prospective long-term financing problems in the Social Security and Medicare programs, have triggered a one-sided austerity-focused class war in the US and around the globe. A coalition of the richest and most economically powerful segments of society, conservative politicians who represent their interests, and right-wing populist groups like the Tea Party has demanded that deficits be eliminated by severe cuts at all levels of government in spending that either supports the poor and the middle class or funds crucial public investment. It also demands tax cuts for the rich and for business. These demands constitute a deliberate attempt to destroy the New Deal project, begun in the 1930s, whose goal was to subject capitalism to democratic control. In this paper I argue that our deficit crisis is the result of a shift from the New-Deal-based economic model of the early post-war period to today's neoliberal, free-market model. The new model has generated slow growth, rising inequality and rising deficits. Rising deficits in turn created demands for austerity. After tracing the long-term evolution of our current deficit crisis, I show that this crisis should be resolved primarily by raising taxes on upper-income households and large corporations, cutting war spending, and adopting a Canadian or European style health care system. Calls for massive government spending cuts should be seen as what they are - an attack by the rich and powerful against the basic interests of the American people.

Key Words: deficit crisis; fiscal crisis; austerity; Social Security crisis; health care crisis.

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