The Great Austerity War: What Caused the Deficit Crisis and Who Should Pay to Fix It?
AbstractRapidly rising deficits at both the federal and state and local government levels, along with long-term financing problems in the Social Security and Medicare programs, have triggered a one-sided austerity focused class war in the US. Similar class conflicts have broken out around the globe. A coalition of the richest and most economically powerful segments of society and conservative politicians who represent their interests has demanded that deficits be eliminated by public-sector austerity - severe cuts at all levels of government in spending that either supports the poor and the middle class or funds crucial public investment. 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. The right-wing coalition seeks to replace that project with a modernized version of the 'free-market' capitalism of the 1920s. 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, a shift initiated under Ronald Reagan and continued under the presidents who succeeded him. 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 can be resolved by raising taxes on upper-income households and large corporations, cutting war spending, and adopting a Canadian or European style health care system. There is no need to accept austerity. Calls for austerity should be seen as what they are - an attack by the rich and powerful against the basic interests of the American people. JEL Categories: E60; E62; H60.
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Bibliographic InfoPaper provided by University of Massachusetts Amherst, Department of Economics in its series UMASS Amherst Economics Working Papers with number 2011-17.
Date of creation: Jun 2011
Date of revision:
deficit crisis; fiscal crisis; austerity; Social Security crisis; health care crisis.;
Other versions of this item:
- Crotty, James, 2011. "The great austerity war: what caused the deficit crisis and who should pay to fix it?," MPRA Paper 32674, University Library of Munich, Germany.
- James Crotty, 2011. "The Great Austerity War: What Caused the Deficit Crisis and Who Should Pay to Fix It?," Working Papers wp260_revised, Political Economy Research Institute, University of Massachusetts at Amherst.
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- H60 - Public Economics - - National Budget, Deficit, and Debt - - - General
- E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
- H6 - Public Economics - - National Budget, Deficit, and Debt
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