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  February 29, 2012

Austerity and the GOP in Power

James Crotty: Republican state governments show what a GOP President might do
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Prof. Emeritus James R. Crotty teaches in the Department of Economics at the University of Massachusetts, Amherst. He is a Research Associate at PERI. He's a macro economist with broad interests whose research in theory and policy attempts to integrate the complementary analytical strengths of the Marxian and Keynesian traditions. His writings have appeared in such diverse journals as the American Economic Review, the Quarterly Journal of Economics, the Cambridge Journal of Economics, the Review of Radical Economics, Monthly Review, the Journal of Post Keynesian Economics, and the Journal of Economic Issues, and in many edited collections. His research interests include: economic methodology; the implications of radical uncertainty for macro theory and policy; theories of financial markets and their implications for understanding financial booms and crises; Marxian and Keynesian perspectives on investment theory; the structure and performance of the global neoliberal economy; theories of competition and their impact on theories of macro dynamics; the financialization of the non-financial firm; and the political economy of South Korea.


PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I'm Paul Jay in Washington.

As we observe the race to become the candidate of the Republican Party in the 2012 elections, most of the economic policy focuses on smaller government, more austerity. Well, what would that actually look like in practice? Well, there's some state governments that are already implementing this, and that may give us some indication what this might also look like at the federal level.

Now joining us to talk about this is Professor James Crotty. Professor Crotty's a emeritus professor at the department of economics at the University of Massachusetts Amherst, and he joins us from the PERI institute, where he is a research associate. Thanks for joining us, James.


JAY: So if you take a look at Republicans in power and those of whom are, you know, on the austerity train, what does that look like? What are the consequences of it? And then what might those policy look like if they were executed at the federal level?

CROTTY: Well, we might say that a lot of the states are kind of laboratories for the implementation of right-wing policies and laboratories that would give us some idea about what it might like to be to live under a federal government that had the same priorities. So if we look at the states—in Indiana and Michigan and Wisconsin, in Florida—that have serious right-wing Republican governors and legislators, we see a whole bunch of things happening.

One, of course, is an all-out assault on organized labor. So the attempt to destroy the union movement has been a part of the agenda of the right-wing in the United States since the 1930s. And they're on the verge of succeeding in destroying labor as a major force in this country. So in the early 1950s, something like—I don't know—36 percent of—35, 36 percent of workers were in unions, and today it's a little bit over 11 percent. And the majority of the workers of that 11-plus percentage points are actually in public-sector unions. So when we looked to Wisconsin, we saw that maybe the single highest priority was to eliminate collective bargaining and set up conditions under which unions couldn't survive. And the same thing is going on in Michigan, similar events in Florida, and so on. So—and the unions are fighting back, and the national unions are fighting back, but this is a purely defensive strategy that takes a lot of money out of their coffers and their ability to do other things.

A second thing is that they're very business-friendly generally. The governor of Wisconsin, one of the first things that he did, as others did, was to cut the corporate tax rates and give, over ten years, tens of billions of dollars of lost revenue to his corporate supporters.

There's also privatization. There's this big move to privatize things that the state did, to give public properties, to give profit-generating, revenue-generating properties, to sell off to the supporters of these governments.

There were deficits that were there, and most states are required to run balanced budgets, but the way this has been done in most of these states is that what gets cut is public education, K through 12, programs for poor people, programs for old people, heating, aid for citizens that, you know, can't afford to pay it, and on and on and on and on.

JAY: The defense of these policies, we're told, is that this all helps create jobs in the private sector, that this is all about—all of the policies you've mentioned are defended based on creating more employment. So is that not true?

CROTTY: No, of course it's not true. Walker in Wisconsin has the worst job-loss record, I think, of any of the 50 states. It's not about jobs. It's about destroying workers and using this wonderful opportunity, from their perspective—remember, Walker is a protégé of the Koch brothers—using this tragedy is a wonderful opportunity to implement the programs that they've been trying to implement forever, which is basically to roll back the state; stop these states functioning as a supporter of social spending, health care, education, and so on; privatize most of what they can privatize; break the union movements; and shrink the state. That's what is in store for us, which is going to be in store for us if the Republicans continue to become more powerful at the federal level.

JAY: But the argument they give is that the governments that have all this money to spend are essentially sucking money from the private sector, and if they had it, they'd be investing and creating jobs and such.

CROTTY: Well, yes, this is true. It's a little bit frustrating as an economist because it basically runs against everything that most sane economists have believed at least since the 1930s, which is essentially that if you cut spending and fire people—we have had almost 700,000 jobs lost at the state and local level—then they have no money, they don't get income, they can't spend money, and the things that they spend money on, therefore, the areas that they spend their money lose jobs. So, you know, they can't buy cars and they can't buy houses; and then people are laid off in those things, and then they can't—. This is the way depressions happen.

JAY: One of the arguments is that public-sector workers getting paid so well, supposedly, and job security and such somehow weakens or undermines workers in the private sector. I mean, partly in theory they pay more taxes. What effect does it have on private sector workers', public sector workers' wages being relatively better than, certainly, unorganized private sector workers'?

CROTTY: Well, but it's not, I mean, as near as I can tell. The Economic Policy Institute has done lots of very good studies on this, that the public sector workers, if you take into account seniority and you take into account education, don't really get paid more highly than private sector workers. They get better benefits and they get somewhat lower pay. It depends on your level of education. But in the end it nets out to be about the same. So I think the facts aren't true.

But there is something that's true. That is, ordinary workers in the country have been suffering with virtually no gain in income for 30 years or more. And over that period of 30 years, in the private sector, pensions have become less and less and less supportive. We've moved from defined benefit pensions, which means you're sure of what you got, to defined contribution pensions, which means you can put your money into a 401(k) or something and good luck to you when you're finished.

But the data shows that for people 55 to 64, their total savings for retirement outside of defined benefit program is about $100,000 or less, which is nothing. So the people that have low wages, high unemployment in the private sector, problems coming down on them all the time. The public sector's providing fewer and fewer services. The public sector isn't supporting their schools. The public—the states are not supporting their colleges. And so these people are in trouble. And naturally it's quite easy then to say, if you don't have retirement programs and pensions and so on and health care, why should you pay taxes to have these other people have it? So if it were planned this way, it would be diabolically successful. You basically destroy the conditions for the ordinary working class and the private sector and have them turn against public sector workers.

JAY: Thanks for joining us, James.

CROTTY: You're welcome.

JAY: And thank you for joining us on The Real News Network.


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