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The Age of Austerity

The Age of Austerity

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Written by Thomas Byrne EdsallAuthor Alerts:  Random House will alert you to new works by Thomas Byrne Edsall

  • Format: Hardcover, 272 pages
  • Publisher: Doubleday
  • On Sale: January 10, 2012
  • Price: $24.95
  • ISBN: 978-0-385-53519-9 (0-385-53519-8)
Also available as an eBook and a trade paperback.
EXCERPT

Chapter One

Austerity

In a matter of just three years a bitter struggle over limited resources has enveloped political discourse at every level in the United States.

Pitched battles between haves and have-nots over health care, taxes, union rights, and unemployment benefits—as well as, at a local level, cuts in police protection, garbage collection, and the numbers of teachers—have dominated public debate. A stagnant economy, ballooning deficits, and the mushrooming strength of antigovernment forces are producing a set of wedge issues centered on fiscal conflict and budget shortages to create a new politics of scarcity.

The ranks of the disadvantaged have exploded. A total of 28.9 million American men and women in July 2011 were either out of work or underemployed, including 13.9 million unemployed actively looking for work, 8.4 million classified as “involuntary part-time workers,” and 6.6 million who wanted a job but had given up looking, according to the Bureau of Labor Statistics.

The severity of joblessness and the prospects for finding work have only minimally abated: in June 2011 there were 4.01 million men and women who had been out of work for at least a year, and nine unemployed job seekers for every two job openings, according to the Bureau of Labor Statistics.

Resource competition between Democrats and Republicans now leaves each side determined to protect what it has at the expense of the other. Worklessness and an underfunded safety net are forcing elected officials to make zero-sum choices—or worse, to enter negative-sum negotiations in which gains and losses add up to less than zero.

There are additional measures of distress. Financial pressures on the working and middle classes have escalated, forcing survival strategies that leave no room for sharing with the less well off. Millions of homeowners who were banking on real estate appreciation to carry their education, medical, and/or retirement costs have seen the average value of their properties drop by 21 percent, from $329,400 in March 2007 to $260,300 in early 2011. In July 2011, 11 million homeowners, or 23 percent, were underwater (owed more than their homes were worth) by an average of $65,000, and another 2.4 million, or 5 percent, had equity of $5,000 or less. From the start of the recession in December 2007 to the end of 2010, banks repossessed just over 2.5 million homes, according to RealtyTrac.com.

With the disappearance of defined-benefit pensions from the private sector, a substantial proportion of those approaching the end of their working lives are depending on inadequate or nonexistent savings that will leave them radically short of what they need to get by, according to Boston College’s Center for Retirement Research.

Half of those already retired receive 90 percent or more of their total income from Social Security, which has an average annual benefit of fourteen thousand dollars. “Even before the financial crisis that began in the fall of 2008, Americans were woefully unprepared for retirement. . . . Today, one-third of American households do not have any form of retirement savings plan beyond Social Security. . . . While lower- and middle-income households are least prepared, most Americans—even in middle- to higher-income households—will fall well short of their retirement expectations,” reports the management consultant firm McKinsey & Company. An AARP poll released on February 3, 2011, found that among those between the ages of forty-six and sixty-five, 25 percent had no retirement savings.

Pressures on the Social Security trust fund are mounting. The leading edge of the baby boom generation turned sixty-five in 2011. The average age of retirement has dropped sharply over the past hundred years. With prolonged schooling and increased longevity, the proportion of the life span in which people actually work and contribute to Social Security and Medicare is declining. At the start of the twentieth century, more than two-thirds of men who survived past the age of sixty-five worked. By 1950 that proportion had shrunk below 50 percent, and by 1985 only 16 percent were employed. The result is a transformation of the dependency ratio: “the number of people 65 and older to every 100 people of traditional working ages [20 to 64] is projected to climb rapidly from 22 in 2010 to 35 in 2030,” according to the U.S. Census Bureau.

Compounding these developments, the population of the very poor is also swelling and increasingly turning to the government for help. In 2010, according to the U.S. Census, 15.1 percent of the population was living in poverty, the highest level since 1993 and up from 11.3 percent in 2000. The poverty rate for whites was 13 percent; for blacks, 27.4 percent; and for Hispanics, 26.8 percent. The number of households receiving Temporary Assistance to Needy Families (TANF), the post-1996 welfare-reform program, increased from 2.27 million in 2000 to 4.49 million by May 2011.

Reflecting the increased need for emergency food, the number of food stamp recipients grew from 17.2 million in 2000, at an annual cost of $17.1 billion, to 44.1 million at the end of 2010, at a cost of $69.6 billion, the highest number in the history of the program. The number of food stamp recipients has grown over just the past three years by 61 percent, with the average monthly per person SNAP (Supplemental Nutrition Assistance Program) benefit in 2010 being $133.70. This amount is available only to persons beneath the government’s designated poverty level, who do not have more than $2,000 in liquid assets or own a home, a population currently estimated at one-fifth of all Americans. At the same time, only two-thirds of those eligible under Department of Health and Human Services criteria enroll in SNAP. In 2006, the last year for which there is data, 44 percent of SNAP household heads reported their race/ethnicity as Hispanic or African American.

Medicaid, the program providing health care to the indigent, has grown by 5 million recipients in a decade, from 41.4 million in 2000 to 46.5 million in 2010. Over the course of the next decade, if the Obama administration’s health care reform survives court and congressional challenges, Medicaid will be required to provide essential coverage for everyone at or below 133 percent of the poverty line; this will add an estimated 15.9 million more recipients between 2014 and 2019, at a five-year cost of $443.5 billion to the federal government and $21.1 billion to be paid by the states.

“Getting Something for Nothing”

As the numbers of recipients of government benefits—ranging from welfare, Medicaid, and unemployment compensation to veteran’s benefits, Social Security, and Medicare—have exploded, the potential for political manipulation has become apparent. In June 2009, for example, the publication of a study by the Urban Institute and Brookings Institution Tax Policy Center showing that 46.9 percent of all households paid no federal income tax in the previous year, as illustrated in Figure 1.1, spurred a flurry of conservative political reaction. The outpouring from the right only intensified with the April 29, 2011, release of a Joint Committee on Taxation analysis showing that 51 percent of tax filers in 2009 paid no income tax. Curtis Dubay, senior tax policy analyst at the Heritage Foundation, argued: “We have 50 percent of people who are getting something for nothing.”

Sean Hannity of FOX News raised the stakes, declaring: “You know, we saw stories this week where people were saying, all right, health care, where do I sign up for my free Obama health care? We saw stories this week, 50 percent of American households no longer pay taxes. What does that mean for America if you have a voting electorate that’s not paying any taxes?”

In May 2010, the Tax Policy Center story was followed by a second that provided further ammunition for the GOP and for the nascent Tea Party movement. Figure 1.2 demonstrates a long-term trend that had accelerated sharply with the onset of the Great Recession: the steady decline of private sector earnings as a share of total personal income, accompanied by a steady rise in government transfer payments financed by tax dollars.

By midsummer 2011, Republican presidential candidates were calling for legislation to make payment of federal income taxes mandatory for all workers, targeting the bottom third of the income distribution whose income was too low to meet federal income tax thresholds at that time.

As the economy continued to falter, massive growth in demand for government services threatened to add substantially to the debit side of the government ledger. The 2010 federal deficit stood at $1.3 trillion and was predicted by the Congressional Budget Office to hit $1.5 trillion in 2011. But those figures tell only a small part of the story. The CBO reported that total federal debt held by the public exceeded $9 trillion at the end of FY 2010, or 62 percent of the GDP, up from 36 percent of GDP in 2007, just as the recession began. The ratio of debt to GDP has never exceeded 50 percent except during World War II and the decade afterward. The CBO projects that debt held by the public will reach 101 percent of GDP by 2021, the highest level since 1946, and 187 percent by 2035.

The consequences, according to the CBO, will be disastrous: higher interest rates for all borrowers; more borrowing from China, Germany, and other countries; declining domestic investment; an inability to respond to future recessions; a growing likelihood of new financial crises; higher interest charges on new government debt; and a severely diminished safety net. And if the past is any guide, the potential for global chaos.

Your Loss Is My Gain

The major issues of the next few years—long-term deficit reduction; a graying population (in 2050 the number of Americans sixty-five and older is projected to be 88.5 million, more than double the aged population of 40 million in 2010); entitlement reform, notably of Social Security and Medicare; and defense spending—suggest that “your loss is my gain” politics will inevitably intensify.

Competition between the Pentagon, entitlement spending, and what remains of discretionary spending on behalf of the poor ensures that among the most incendiary issues will be the attempt of each major party to blame the other for the conclusive demise of the American Century.

The threats to individual well-being inherent in such negative-sum conflicts cut against the American grain. A brutal squeeze on resources is evident in venues from Colorado Springs—where more than a third of the city’s 24,512 streetlights were extinguished, police helicopters sold, the police vice team laid off, and money for water and fertilizer in city parks eliminated—to Prichard, Alabama, where monthly pension checks to the town’s 150 retired workers were halted.

At the height of the 2011 battles between Republican governors and public sector unions, New Jersey governor Chris Christie defined the polarized struggle in terms of the deserving taxpayers and the elderly of New Jersey joined together, on one side, against a protected class of public employees seeking to line its pockets, on the other. Christie told the state legislature on February 22, 2011:

Enacting reform of our public employee health insurance program now will enable us to take another vital step—providing critical property tax relief to those who need it most: hard working, middle-class New Jerseyans and seniors. But let me be clear: the chance for middle class taxpayers and seniors to receive double the property tax relief without raising taxes on anyone else is solely up to you, the Legislature. The ability to provide doubled property tax rebates involves a tradeoff and requires real reform to pay for it.

Along parallel lines, shortly after he won election in 2010, Wisconsin governor Scott Walker declared, “[W]e can no longer live in a society where the public employees are the haves and taxpayers who foot the bills are the have-nots”—a clear bid to establish polarizing divisions to the advantage of the GOP.

There are, however, obvious dangers for the Republicans who, galvanized by Tea Party success, emerged in 2010 and 2011 as self-proclaimed advocates of the new austerity. First and foremost, substantial numbers of Republican voters have no appetite for cuts in the two programs that virtually every economist and budget analyst says must be chopped down to size: Medicare and Social Security.

Chased by a Tiger

When voters were asked in a March 3, 2011, Wall Street Journal/NBC poll if Medicare cuts were necessary to “significantly reduce” the deficit, 18 percent agreed and 54 percent said no. In the case of Social Security, 22 percent said cuts were needed, while 49 percent said they were not. Bill McInturff, a Republican strategist who co-ran the poll, said the results are “a huge flashing yellow sign for Republicans on how much preparation will be needed if they propose to change Social Security and Medicare.” Asked why the House Republican leadership is preparing to go ahead with entitlement cuts, McInturff said, “It may be hard to understand why someone would try to jump off a cliff . . . unless you understand that they are being chased by a tiger, and that tiger is the Tea Party.”

In addition to the difficulty in persuading sufficient numbers of Republicans to slash the most popular—and expensive—entitlements, the GOP is in danger of splintering over the question of whether to cut defense spending. While the House leadership and many of the more senior Republicans in both branches of Congress consider the Pentagon budget untouchable, that is not the case for newly elected GOP members, many of whom have ties to the Tea Party.

On February 16, 2011, for example, the House voted 233–198 to eliminate funding for additional engines for the F-35 aircraft. The action was taken over the objections of the Republican leadership and a majority of the Republican caucus, 130 of whom voted to preserve the F-35 appropriation. Funding for the additional aircraft engines was eliminated, however, by an alliance of 110 Republicans, many of whom were freshmen elected with Tea Party backing, and 123 Democrats.

Girding for Battle

On one side, Republicans and Tea Party activists are convinced that their rights, freedoms, and economic stability are under assault by the Democratic-led expansion of the state. “Now that the Democrats have added trillions to our national debt, unemployment has more than doubled, and millions of Americans have lost their jobs,” declared Senator Jim DeMint (R-SC) on September 3, 2010. “The Democrats’ experiment with socialism must end: government spending, debt, and takeovers will not put Americans back to work.”

On the other side, liberals and many Democrats are determined to protect the flow of government benefits to key constituencies.

When President Obama’s National Commission on Fiscal Responsibility and Reform, aka the Deficit Commission, proposed a collection of hard-nosed savings measures—among them, reducing Social Security benefits and raising the retirement age to sixty-eight, freezing federal salaries for three years, eliminating earmarks, and capping the tax deductibility of health insurance coverage and of mortgage interest payments—Democratic House Minority Leader Nancy Pelosi declared:

This proposal is simply unacceptable. Any final proposal from the Commission should do what is right for our children and grandchildren’s economic security as well as for our nation’s fiscal security, and it must do what is right for our seniors, who are counting on the bedrock promises of Social Security and Medicare. And it must strengthen America’s middle class families—under siege for the last decade, and unable to withstand further encroachment on their economic security.

Excerpted from The Age of Austerity by Thomas Byrne Edsall Copyright © 2012 by Thomas Byrne Edsall. Excerpted by permission of Doubleday, a division of Random House LLC. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.