Business Leaders Should Be Against Austerity, Not For It
A New York Times article yesterday reported that Fix the Debt, the deficit hawk group which positions itself as a neutral body of wisemen, includes a number of corporate lobbyists and board members. The Times noted that many of those involved in Fix the Debt helped create the deficit problem to begin with by fighting to defend tax perks for business and the wealthy, such as the record low rates for capital gains and dividends, along with the notorious "carried interest" loophole.
No big surprises there. As John Judis explained long ago in his book, The Paradox of American Democracy, it's hard to find any genuine wisemen in Washington anymore; not in a town where even the most esteemed former public servants have all sold out to the highest bidder.
But here's the real thing that puzzles me about corporate leaders who push for deficit reduction: Why in the world would business favor austerity?
Sure, I can understand why corporate leaders worry about deficits in the long run. Borrowing a trillion dollars a year forever is obviously a bad idea. And I, for one, am deeply troubled by how interest payments on the national debt will double as a percentage of GDP in the next decade and how, by 2022, the U.S. will be spending twice as much on interest as all domestic discretionary spending combined. That's bad.
Nearly every major progressive group -- including Demos (working with EPI and the Century Foundation) -- has been worried enough about the deficit to put out plans within the past two years that would reduce and stabilize debt as a percentage of GDP.
But there's a big difference between pushing for deficit reduction now and planning to achieve it later. Deficit reduction now, which is what deficit hawks like Pete Peterson want, could derail a fragile recovery and prolong a slump that greatly exacerbates our fiscal problems by depressing tax revenue and raising the costs of entitlement programs like food stamps and unemployment insurance.
Business would suffer from overzealous austerity as less money flows through the economy and demand for everything falls.
The only reason demand as been as high as it has been in recent years is because of monetary and fiscal stimulus. Business has greatly benefited from these policies and, come to think of it, may actually have benefited more than any other sector of U.S. society. Corporate profits have hit record highs in the past few years and Wall Street has made a killing by borrowing money at zero interest from the Fed and loaning it out at high rates. (Average interest on credit cards is about 16 percent; nice spread if you can get it.)
And the weird thing is that corporate chiefs should know better than to line up behind austerity. These are practical people who are supposed to understand economics -- unlike the know-nothing Tea Party activists and the small-minded people they send to Congress. These leaders should know that the only way to deal with a major shortfall in demand is to turn to deficit spending to create demand -- at least for a while.
Business leaders should know something else, too. Which is that there are any number of worthwhile things that public dollars can be spent on right now to stimulate growth -- with infrastructure and education on the top of the list, two areas where investment translates directly into long-term growth and tangible benefits to business in the form of better human capital and improved movement of goods, services, and people.
Finally, business leaders know about debt and capital markets. So they know that it's never been cheaper for the U.S. government to borrow money and that capital markets haven't shown the slightest jitters about all our debt.
So what I'm wondering is this: Why don't the business leaders who actually get it organize together to demand more stimulus? Forget fixing the debt. We need influential voices in favor of fixing the economy.
