Paul Krugman hit the nail on the head today.
Suddenly, creating jobs is out, inflicting pain is in. Condemning deficits and refusing to help a still-struggling economy has become the new fashion everywhere, including the United States, where 52 senators voted against extending aid to the unemployed despite the highest rate of long-term joblessness since the 1930s.
Many economists, myself included, regard this turn to austerity as a huge mistake. It raises memories of 1937, when F.D.R.’s premature attempt to balance the budget helped plunge a recovering economy back into severe recession.
A few weeks ago the unemployment bill was a foregone conclusion. But with solid opposition from Republicans, and a few defecting conservative Democrats, 1.2 million Americans will suddenly lose their last lifeline.
The measure would protect doctors from a steep cut in Medicare rates scheduled to take effect Friday and extend emergency unemployment benefits that support more than 5 million people. Without congressional action, an estimated 1.2 million people will stop receiving checks by the end of the month, according to independent estimates.
The package also would extend some expired tax breaks for businesses and individuals, including the hugely popular research and development tax credit. And it would raise taxes on oil companies, multinational corporations and investment partnerships.
R&D tax breaks, unemployment extensions, its the Keynesian method written large. But the deficit hawks have rejected this theory. In fact, they don't have much of a theory at all. Krugman goes on to explain this in Germany's case, but it also applies to America.
What’s the economic logic behind the government’s moves? The answer, as far as I can tell, is that there isn’t any...Arguing with German deficit hawks feels more than a bit like arguing with U.S. Iraq hawks back in 2002: They know what they want to do, and every time you refute one argument, they just come up with another.
In America, many self-described deficit hawks are hypocrites, pure and simple: They’re eager to slash benefits for those in need, but their concerns about red ink vanish when it comes to tax breaks for the wealthy. Thus, Senator Ben Nelson, who sanctimoniously declared that we can’t afford $77 billion in aid to the unemployed, was instrumental in passing the first Bush tax cut, which cost a cool $1.3 trillion.
At least the German's are sincere. Lord only knows what the American deficit hawks believe.
The jobs bill that the Republicans just torpedoed also contained $24 Billion for state governments. Without it we are looking at massive layoffs and pay cuts all over the country.
How exactly are we supposed to balance the budget while people are losing their jobs? And those people who lost their jobs now don't have any money coming in.
[Update: Let's not forget the impact of the Census on the downside.