[Congressional Record Volume 159, Number 65 (Thursday, May 9, 2013)]
[Extensions of Remarks]
[Pages E636-E637]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                         THE STORY OF OUR TIME

                                 ______
                                 

                           HON. JIM McDERMOTT

                             of washington

                    in the house of representatives

                         Thursday, May 9, 2013

  Mr. McDERMOTT. Mr. Speaker, in light of ongoing budget discussions 
and damaging sequestration cuts to programs that help our most 
vulnerable populations, it is time to end the austerity debate. I urge 
all of my colleagues to read and consider Paul Krugman's New York Times 
Opinion piece, ``The Story of Our Time.''

       Those of us who have spent years arguing against premature 
     fiscal austerity have just had a good two weeks. Academic 
     studies that supposedly justified austerity have lost 
     credibility; hard-liners in the European Commission and 
     elsewhere have softened their rhetoric. The tone of the 
     conversation has definitely changed.
       My sense, however, is that many people still don't 
     understand what this is all about. So this seems like a good 
     time to offer a sort of refresher on the nature of our 
     economic woes, and why this remains a very bad time for 
     spending cuts.
       Let's start with what may be the most crucial thing to 
     understand: the economy is not like an individual family.

[[Page E637]]

       Families earn what they can, and spend as much as they 
     think prudent; spending and earning opportunities are two 
     different things. In the economy as a whole, however, income 
     and spending are interdependent: my spending is your income, 
     and your spending is my income. If both of us slash spending 
     at the same time, both of our incomes will fall too.
       And that's what happened after the financial crisis of 
     2008. Many people suddenly cut spending, either because they 
     chose to or because their creditors forced them to; 
     meanwhile, not many people were able or willing to spend 
     more. The result was a plunge in incomes that also caused a 
     plunge in employment, creating the depression that persists 
     to this day.
       Why did spending plunge? Mainly because of a burst housing 
     bubble and an overhang of private-sector debt--but if you ask 
     me, people talk too much about what went wrong during the 
     boom years and not enough about what we should be doing now. 
     For no matter how lurid the excesses of the past, there's no 
     good reason that we should pay for them with year after year 
     of mass unemployment.
       So what could we do to reduce unemployment? The answer is, 
     this is a time for above-normal government spending, to 
     sustain the economy until the private sector is willing to 
     spend again. The crucial point is that under current 
     conditions, the government is not, repeat not, in competition 
     with the private sector. Government spending doesn't divert 
     resources away from private uses; it puts unemployed 
     resources to work. Government borrowing doesn't crowd out 
     private investment; it mobilizes funds that would otherwise 
     go unused.
       Now, just to be clear, this is not a case for more 
     government spending and larger budget deficits under all 
     circumstances--and the claim that people like me always want 
     bigger deficits is just false. For the economy isn't always 
     like this--in fact, situations like the one we're in are 
     fairly rare. By all means let's try to reduce deficits and 
     bring down government indebtedness once normal conditions 
     return and the economy is no longer depressed. But right now 
     we're still dealing with the aftermath of a once-in-three-
     generations financial crisis. This is no time for austerity.
       O.K., I've just given you a story, but why should you 
     believe it? There are, after all, people who insist that the 
     real problem is on the economy's supply side: that workers 
     lack the skills they need, or that unemployment insurance has 
     destroyed the incentive to work, or that the looming menace 
     of universal health care is preventing hiring, or whatever. 
     How do we know that they're wrong?
       Well, I could go on at length on this topic, but just look 
     at the predictions the two sides in this debate have made. 
     People like me predicted right from the start that large 
     budget deficits would have little effect on interest rates, 
     that large-scale ``money printing'' by the Fed (not a good 
     description of actual Fed policy, but never mind) wouldn't be 
     inflationary, that austerity policies would lead to terrible 
     economic downturns. The other side jeered, insisting that 
     interest rates would skyrocket and that austerity would 
     actually lead to economic expansion. Ask bond traders, or the 
     suffering populations of Spain, Portugal and so on, how it 
     actually turned out.
       Is the story really that simple, and would it really be 
     that easy to end the scourge of unemployment? Yes--but 
     powerful people don't want to believe it. Some of them have a 
     visceral sense that suffering is good, that we must pay a 
     price for past sins (even if the sinners then and the 
     sufferers now are very different groups of people). Some of 
     them see the crisis as an opportunity to dismantle the social 
     safety net. And just about everyone in the policy elite takes 
     cues from a wealthy minority that isn't actually feeling much 
     pain.
       What has happened now, however, is that the drive for 
     austerity has lost its intellectual fig leaf, and stands 
     exposed as the expression of prejudice, opportunism and class 
     interest it always was. And maybe, just maybe, that sudden 
     exposure will give us a chance to start doing something about 
     the depression we're in.

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