Austerity effort's roots are honorable but dubious

Austerity and the failed effort by the federal government to cut all ties with tribal governments are twin ideologies.
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Austerity and the failed effort by the federal government to cut all ties with tribal governments are twin ideologies.

If you look at the failed history of termination — the idea of ending the federal-treaty relationship with tribal governments — there were two distinct motives. Some believed it was the next logical step for Indian progress, an economic integration. Others hated government and used termination as a method to shrink and attack government.

National Congress of American Indians President Joseph Garry, a member of Idaho’s Coeur d’Alene Tribe,  said at the 1958 convention, that Congress adopted the termination resolution in good faith, “believing it would be good for Indian people” even though it was clearly dangerous and a disaster. That’s why nearly everyone, friends and foe alike, were at least partial supporters of termination policy.

Utah’s Republican Sen. Arthur Watkins was from the shrink-and-attack government camp. He was zealous about termination, badgering tribal witnesses when they came to Capitol Hill, refusing to even consider alternatives. He dismissed treaty obligations outright. Indians, he said, “want all the benefits of the things we have — highways, schools, hospitals, everything that civilization furnished— but they don’t want to help pay their share of it.”

This story should have a familiar ring to it. The same forces are at play when it comes to austerity. One camp sees the problem -- the country’s demographic imbalance -- and opts for austerity as a solution or at least a partial solution. While the other camp hates government and sees austerity as a tool to shrink and attack. Arthur Watkins would be at home in a Tea Party crowd.

The practical problem with austerity, however, is that it does not lead to growth, especially over a short period of time. But from those that hate government, there was evidence that too much debt also made it harder for an economy to grow. A pair of economists, Carmen Reinhart and Kenneth Rogoff, published a paper in 2010 that found that public debt slows growth when it reaches or exceeds 90 percent of a country’s Gross Domestic Product. This work became the intellectual rallying cry for austerity.  As House Budget Committee Chairman Paul Ryan put it: “Economists who have studied sovereign debt tell us that letting total debt rise above 90 percent of GDP creates a drag on economic growth and intensifies the risk of a debt-fueled economic crisis.”

But last week another paper found Excel errors in the Reinhart and Rogoff study (based on the work of a graduate student) and reached a conclusion “contrary” to Reinhart and Rogoff. Namely, the “average GDP growth at public debt/GDP ratios over 90 percent is not dramatically different than when debt/GDP ratios are lower.”

Of course we all make mistakes. But you would think that this is enough information to at least raise questions about austerity (or, at the very least, the speed of the execution of austerity programs). But that’s hardly the case. Indeed, the data does not matter to austerity’s zealots. Ryan’s budget calls for balancing the budget in a decade, requiring a dramatically shrinking of government — a sort of termination policy for all.

There are many that buy into austerity because they believe it to be the only logical course. The idea of limiting federal deficits is certainly appealing and over the long haul important. But what’s missing from that debate is that federal spending must also get more people working and there must be a real investment in the next generation, in other words, spend money now. We cannot be successful with the long-term challenges — Social Security, Medicare, Medicaid, pension deficits — unless we do something about the first problem first. The U.S. actually has an incredible opportunity here: low interest rates. Borrowing money at this moment is extraordinarily cheap. So the country has a decade, at least, to solve the first set of problems before resolving the longer-range demographic imbalance.

The United States sharply cut government spending after World War II when debt levels exceeded 120 percent of GDP.  Indian Country, which is a big part of the Northwest, remembers that era well, because it paralleled the termination era. Severe austerity and termination are related ideologies.


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