We will leave it to the historians to figure out how both political parties, and many Americans, became convinced that austerity is the road to recovery. History provides evidence that it is not, including the premature budget tightening of 1937 that reignited the Depression.
For now, it is clear that the traditional drivers of recovery — consumer spending and residential real estate — have failed to rebound, with the latest report showing consumers extremely cautious about spending on anything and the housing market stuck at its post-bubble lows.
Weak demand leads to slow growth, and slow growth leads to high and rising unemployment, which then reinforces weak demand and slow growth, and so on, in a vicious cycle from which the economy, obviously, has found no escape.
At this point, deep cuts are all but inevitable. But there are sensible things to be done to limit the harm. Budget cuts should be timed to begin as the economy recovers. Congress should vote to extend the federal unemployment benefits program and the payroll tax cut for employees. Republicans will likely oppose even those basic measures. So the White House and Congressional Democrats are going to have to do a better job of explaining economic reality than they have done so far.
The real secret is WE are the job creators. We provide the demand employers need to hire more and grow.
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