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The great austerity war: what caused the US deficit crisis and who should pay to fix it?

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  • James Crotty

Abstract

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 programmes, have triggered a one-sided austerity-focused class war in the USA 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 postwar 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. Copyright The Author 2012. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved., Oxford University Press.

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Bibliographic Info

Article provided by Oxford University Press in its journal Cambridge Journal of Economics.

Volume (Year): 36 (2012)
Issue (Month): 1 ()
Pages: 79-104

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Handle: RePEc:oup:cambje:v:36:y:2012:i:1:p:79-104

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Cited by:
  1. Thomas Goda, 2013. "The role of income inequality in crisis theories and in the subprime crisis," Working Papers PKWP1305, Post Keynesian Economics Study Group (PKSG).

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