At a Critical Crossroads: Why Austerity Now is a False Cure

I have written in recent weeks about the difficult circumstances in which middle- and low-income families have found themselves over the past decade, as amply illustrated by the most recent census report, and pointed out the hardships the recession is placing on public budgets in general and early childhood education in particular. That this confluence of events poses a grave danger to the progress made in early childhood education should be apparent to one and all. Yet it apparently is not in this political season of achieving fiscal austerity at all costs.

This is an ominous sign for those of us whose responsibility it is to look at public investments through the prism of the returns they provide the nation in the form of future human capital formation (better-educated workforce) and our global competitiveness. Erskine Bowles and Alan Simpson, chairmen of the president’s deficit commission charged with making recommendations for returning the nation to prosperity recognize the need to invest in education. But they were unable to convince enough elected officials in their group, whose ears are bent to the call for austerity sweeping the country, to sign on to the report.

Now come two reports that offer sensible analyses and additional prescriptions for making critical investments in programs like early education while setting the nation on a course to recovery. Both point out that at this crossroads in our economy, austerity at this point in time represents a false cure. One, a special report in the November issue of The American Prospect, devotes 10 articles to various aspects of the economic debate. Its purpose is, as editor Robert Kuttner writes, to disentangle the proper sequencing of recovery spending and deficit reduction, agreeing with Bowles, Simpson, Alice Rivlin, Pete Domenici, and others that the nation needs better fiscal balance once we emerge from this deep recession. But now, when unemployment is unacceptably high and families are struggling, is no time to cut back on social investment. In fact, stepping up social investment at this time is critical to achieving the recovery the deficit hawks seek through austerity.

In the Prospect report, political scientists Christopher Howard and Richard Valelly aptly refer to the post-election obsession with austerity as “deficit-attention disorder” pointing out that even though Americans are worried about the deficit, the great majority of polls show they are far more worried about the economy’s weakness than the nation’s public debt. Once again, the public is displaying more wisdom than many of those representing them in Washington give them credit for. Perhaps some recall that during the Great Depression, it was the premature fiscal tightening that pushed the U.S. economy back into recession — an outcome we now run the risk of repeating.

Economist James K. Galbraith points out that fully half the increase in the budget deficit is due to collapsing tax revenues. Less than 10 percent is due to increases in discretionary public expenditure such as the American Recovery and Reinvestment Act. He separates the deficit into the active deficit — comprised of social spending for things like stimulating employment and education — and the passive deficit, which is incurred due to high unemployment which reduces tax revenues necessary to pay for public spending. It is, in fact, this passive, recession-induced deficit that makes it impossible, no matter how much austerity is imposed on social spending, to wipe out the public debt.

Algernon Austin at the Economic Policy Institute writes we are putting our children’s future in jeopardy because of large cuts to pre-K through 12th grade education. About 40 percent of America’s children are low-income and their circumstances continue to decline because unemployment in the service and blue-collar sectors where their parents work stands at 10.7 percent and 13.7 percent respectively. Citing NIEER’s research, Austin calls for additional investments in high-quality pre-K and kindergarten.

Another important report just out is Investing in America’s Economy: A Budget Blueprint for Economic Recovery and Fiscal Responsibility. It’s a collaboration between The Century Foundation, Demos, and the Economic Policy Institute and it proposes a budgetary path for returning the economy to sound footing by 2018. Tackling our rising health care costs and addressing our recession-induced revenue shortfall by enhancing long-term investment in job creation and education by reallocating funds from the Department of Defense are central to their plan. It, too, points out the necessity of “front-loading” investments in early care and education because it is vital to economic growth and future competitiveness.

The plan recommends a comprehensive upgrade and expansion of child care from birth to preschool and provides revenues to pay for it to the tune of $88 billion per year. It calls for providing resources to upgrade the quality and training of providers and new investments to ensure that all low-income families who wish to participate can enroll in Early Head Start and Head Start.

That is the right idea, but not the right mechanism.  As most in the field have recognized, we need to move beyond single program solutions to achieve universal coverage of low-income families with early care and education. For that to happen, we would need to sustain the new investments recently made in Head Start and Early Head Start while underwriting state efforts to increase their investments in early learning programs so as to raise quality while expanding access.  State governments no less than the federal government need to be shifting toward more efficient, pro-growth uses of their resources.  All across the country, states are responding to the current economic crisis by cutting jobs and offering tax incentives and other inducements to business to relocate in a zero sum game that has no benefits nationally and only leads to more job cuts in state government—talk about reorganizing the deck chairs on the Titanic!  Now more than ever we need a federal Early Learning Challenge Fund that will incentivize states to spend more of their own money on early learning programs and jumpstart those efforts with added stimulus funds for early learning over the next two years.

Lest anyone think this analysis is just wishful left-wing analysis, Federal Reserve Chairman Ben Bernanke also has called for a two-part strategy of immediate stimulus followed by other efforts to reduce the long-term deficit.    If those who believe the road to prosperity is paved with sacrifice prevail, we are in for more of it than they imagine because we will also be sacrificing the future prospects for a large proportion of our children. And they’re the folks upon whom the future of the nation rests.

Steve Barnett

Co- Director, NIEER

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