The Zombie Rises: The Return of Simpson-Bowles
Take a good look at Europe — bloody riots in Athens and Madrid, rising unemployment, spreading poverty and suicide, and a deepening recession — because the current American elite consensus bizarrely wants to drive America down that same path.
Europe’s miseries come from imposing austerity before recovering from the recession caused by the financial collapse. Conservatives in Germany and England inflicted harsh measures to enforce budget discipline — hiking taxes and cutting spending.
In the U.S., the Obama recovery plan and the deal with Republicans over extending the Bush tax cuts combined to limit and slow the imposition of austerity. The result: Europe is sinking, while the U.S. economy retains slow but halting growth.
But now the deficit hawks are gearing up for another run at driving the U.S. back into economic recession.
The Coming Train Wreck
At the end of the year, we face a train wreck. After the November election the Bush tax cuts, the payroll tax cut and extended unemployment benefits will expire. The automatic cut — “sequester,” in budget speak — of nearly 10 percent of military and domestic discretionary spending (everything except guaranteed programs like Medicare and Social Security and interest on the national debt) kicks in. We even hit the debt limit to add to the high stakes.
If all this is allowed to occur, it will subtract over 3 percent of GDP from an economy growing at 2.5 percent or less. A drop back into recession would be almost inevitable. So a deal is needed.