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Here we go again

The Donors Forum is warning of “an immediate series of drastic cuts to community services,” along with the loss of thousands of jobs in Illinois, unless Congress acts this week to head off spending reductions contained in sequestration.

While sequestration is “framed as an impersonal budget deficit fix for the future,” the reality is “these cuts will damage people now,” said Delia Coleman, public policy director of the group, in an e-mail.

Sequestration would mean $33.4 million less for primary and secondary education in Illinois, $24.7 million less for children with disabilities, and millions of dollars in cuts to pollution prevention, health and human services, public safety and domestic violence programs.

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The situation results from the political and economic miscalculations of President Obama, beginning with his embrace of deficit reduction as a priority in his first term, writes Robert Kuttner in American Prospect.

At stake, he writes, are the economic recovery and the success of Obama’s presidency.

“The automated reductions of the sequester are only the prologue to a decade-long drama, in which the economy faces one budget squeeze after another, all but guaranteeing a prolonged slump. Unless Congress repudiates the 2011 Budget Control Act, and President Obama blows up the entire paradigm that produced it, a fragile recovery will be the victim of budgetary masochism.”

Currently Obama is offering Republicans a “grand bargain,” in which he would trade $130 billion in cuts to Social Security benefits in exchange for tax increases on the wealthy.

“Though too few Democrats will come right out and say it, there is a far better path to both economic recovery and eventual stabilization of the debt ratio,” Kuttner writes. “We need to increase public spending in the next few years, using both deficit spending and higher taxes on the wealthy, to get the economy back on a high-growth path….

“With a program of economic expansion, we can reach a stable long-term debt ratio, but at a higher level of economic output and a more broadly shared prosperity. The goal is economic recovery – and the recovery improves the debt ratio, not the other way around.”

He cites the European experience as a cautionary tale — and notes that budget cuts sent the economy into contraction in the last quarter of last year:

“As the Greeks have painfully learned over and over again, you can cut spending and raise taxes, and the deficit just keeps growing larger — because you are destroying your economy. The same has been demonstrated for Spain, Portugal, and Britain. Something similar occurred on a more modest scale in the fourth quarter of 2012 right at home.”

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“As pundits and the Washington establishment hone in on the sequester this week, what remains unfortunate in this picture is that there is still little willingness to talk realistically about the relationship between the economy and the budget deficit,” writes Dean Baker of the Center for Economic and Policy Research.

“Both parties have played into the myth that out-of-control budget deficits are a chief economic problem. Democrats have pushed this line to call attention to the Bush tax cuts and the fact that he did not pay for the wars in Iraq and Afghanistan. Republicans push the line to feed the notion that government is overspending….

“Rather than being a bad thing, the deficit is providing a needed boost to the economy. There is no plausible story whereby private-sector demand will fill the gap created by a smaller deficit.

“Whether they know it or not, those pushing for smaller deficits are promoting less growth and more unemployment. It would be the best possible outcome of the sequester debate if this simple point could be made in polite circles in Washington again.

“Until we have a reality based discussion of the budget and the economy, the only question will be how much we lose from the latest deal.”

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Category: economy, federal budget

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