July 19, 2011
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Austerity advocates talk about government spending as if its impact on the economy is marginal. In their world, we can slash spending with few if any consequences for our roads and bridges; transportation, health care, and educational systems; research and development activity; investment in plant and equipment; employment and wage levels; economic growth . . . the list goes on.
That may be how it looks in their world, but in the real world it is quite different. Looking just at personal income, for example, the New York Times reports that:
An extraordinary amount of personal income is coming directly from the government.
Close to $2 of every $10 that went into Americans’ wallets last year  were payments like jobless benefits, food stamps, Social Security and disability, according to an analysis by Moody’s Analytics. In states hit hard by the downturn, like Arizona, Florida, Michigan and Ohio, residents derived even more of their income from the government.
If the austerity advocates have their way, public spending will be cut. However, as the information in the box below reveals, the consequences will be severe for our entire economy, not just for those individuals directly receiving support. As the New York Times explains, “Throughout the recession and its aftermath, government benefits have helped keep money in people’s wallets and, in turn, circulating among businesses. Total government payments rose to $2.3 trillion in 2010, from $1.7 trillion in 2007, an increase of about 35 percent.”
We definitely need to remake our political-economy. However, it is madness to think that destroying the social infrastructure underpinning current economic activity is a productive way to achieve that goal.