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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.

Suggested Citation

  • James Crotty, 2012. "The great austerity war: what caused the US deficit crisis and who should pay to fix it?," Cambridge Journal of Economics, Oxford University Press, vol. 36(1), pages 79-104.
  • Handle: RePEc:oup:cambje:v:36:y:2012:i:1:p:79-104
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    File URL: http://hdl.handle.net/10.1093/cje/ber029
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    Cited by:

    1. repec:oup:cambje:v:42:y:2018:i:1:p:95-115. is not listed on IDEAS
    2. Thomas Goda, 2013. "The role of income inequality in crisis theories and in the subprime crisis," Working Papers PKWP1305, Post Keynesian Economics Society (PKES).
    3. Thomas Goda & Santiago Sanchez, 2017. "Market and disposable top income shares adjusted by national accounts data," DOCUMENTOS DE TRABAJO CIEF 015674, UNIVERSIDAD EAFIT.
    4. Engelbert Stockhammer & Collin Constantine & Severin Reissl, 2016. "Explaining the Euro crisis: Current account imbalances, credit booms and economic policy in different economic paradigms," Working Papers PKWP1617, Post Keynesian Economics Society (PKES).
    5. Goda, Thomas & Onaran, Özlem & Stockhammer, Engelbert, 2014. "A case for redistribution? income inequality and wealth concentration in the recent crisis," Greenwich Papers in Political Economy 14056, University of Greenwich, Greenwich Political Economy Research Centre.
    6. Perugini, Cristiano & Žarković Rakić, Jelena & Vladisavljević, Marko, 2016. "Austerity and gender wage inequality in EU countries," MPRA Paper 76306, University Library of Munich, Germany.
    7. Mathieu Dufour & Özgür Orhangazi, 2016. "Growth and distribution after the 2007–2008 US financial crisis: who shouldered the burden of the crisis?," Review of Keynesian Economics, Edward Elgar Publishing, vol. 4(2), pages 151-174, April.
    8. Hassan Bougrine, 2012. "Fiscal austerity, the Great Recession and the rise of new dictatorships," Review of Keynesian Economics, Edward Elgar Publishing, vol. 1(0), pages 109-125.
    9. Thomas Goda & Alejandro Torres García, 2017. "The Rising Tide of Absolute Global Income Inequality During 1850–2010: Is It Driven by Inequality Within or Between Countries?," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 130(3), pages 1051-1072, February.
    10. Thomas Goda, 2017. "A comparative review of the role of income inequality in economic crisis theories and its contribution to the financial crisis of 2007-2009," REVISTA FINANZAS Y POLÍTICA ECONÓMICA, UNIVERSIDAD CATOLICA DE COLOMBIA, vol. 9(1), pages 151-174, February.
    11. repec:nov:artigo:v:25:y:2015:i:spe:p:835-861 is not listed on IDEAS

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