Monday, November 24, 2014

Austerity’s Children

WASHINGTON, DC – When economists discuss “fiscal adjustment,” they typically frame it as an abstract and complex goal. But the issue is actually simple: Who will bear the brunt of measures to reduce the budget deficit? Either taxes have to go up for some people, or spending must fall – or both. “Fiscal adjustment” is jargon; what austerity is always about is the distribution of income.

Much of Europe is already aware of this, of course. Now it’s America’s turn. And current indications there suggest that the people most directly in line for a fiscal squeeze are those who are least able to defend themselves – relatively poor children. For example, the current budget sequester (that is, across-the-board spending cuts) is already hurting programs like Head Start, which supports pre-school education.

The American comedian Jimmy Kimmel recently poked fun at his compatriots’ lack of fiscal knowledge by asking pedestrians on Hollywood Boulevard what they thought of  “Obama’s decision to pardon the sequester and send it to Portugal.” The segment is hilarious, but also sad, because the impact on some people’s lives is very real. Around 70,000 children are likely to lose access to Head Start on our current fiscal course.

And much larger cuts are in store for early-childhood nutrition programs and health care. Perhaps most shocking are the dramatic cuts to the Medicaid health-insurance program that the House of Representatives’ Republican majority have embraced in their latest budget proposal. Paul Ryan, the chairman of the House Budget Committee, proposes to balance the budget over the next 10 years largely by slashing the program. About half of all people covered by Medicaid are children.

Is it fair to force low-income children to bear the burden of fiscal adjustment? According to data available on the economist Emmanuel Saez’s invaluable Web site, from 1993 to 2011, average real income for the bottom 99% of the population (by income) rose by 5.8%, while the top 1% experienced real income growth of 57.5%. The top 1% captured 62% of all income growth over this period, partly owing to a sharp rise in returns to higher education in recent decades. (On average, those with only a high school education or less have few good income prospects.)

This implies that, if anything, the tax system should become more progressive, with the proceeds invested in public goods that are not sufficiently provided by the private sector – things like early childhood education and preventive health care to minimize educational disruption resulting from common ailments like childhood asthma.

Think of it this way: In recent decades, some families chose locations and occupations that seemed to offer a reasonable means of support – and good prospects for their children. Many of these decisions turned out badly, largely because information technology (computers and how they are used) eliminated many middle-class jobs. Increasing globalization of trade also did not help in this regard. In addition, as Till von Wachter of Columbia University has documented, prolonged periods of unemployment for parents have a severe and lasting negative impact on their children.

Children whose families cannot provide a decent start in life deserve help. But America has not provided it – a point recently made by Jeb Bush, a leading contender for the Republican presidential nomination in 2016. “In our country today,” Bush said in a speech to fellow conservatives, “if you’re born poor, if your parents didn’t go to college, if you don’t know your father, if English isn’t spoken at home, then the odds are stacked against you.”

Nor is America likely to provide such help in the future, given the coming budget cuts’ disproportionate impact on children at the lower end of the income distribution.

America can easily afford to do better, of course. Its large budget deficits reflect the impact of tax breaks that favor the wealthy and upper middle class; an unfunded expansion of Medicare coverage to include prescription medicines; two foreign wars; and, most important, a banking system that was allowed to get out of control, inflicting massive disruption on the real economy (and thus on tax revenue).

Today’s children did not play a role in any of these policy mistakes. The preschoolers who are about to lose access to Head Start weren’t even born when they were made.

Imposing austerity on poor children is not just unfair; it is also bad economics. When economists, again with their dry jargon, talk about a country’s “human capital,” what they really mean is the cognitive and physical abilities of its people.

As I pointed out in recent Congressional testimony, poor education leads to poor job prospects, poor families, and back to poor education – if not with a detour through incarceration, which makes it even harder to break the cycle. Unfortunately, no one in a position of power is likely to heed such arguments.

They should. When you travel to a foreign country for the first time, and you see neglected, ill-fed, and uneducated children, do you regard that country as likely to be one of the world’s great economic powers over the next half-century? Or do you worry for its future?

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    1. CommentedMark Pitts

      Professor Johnson would like to mislead his readers. High earners are now paying a higher percentage of all taxes than they have in a generation. And due to the progressive income tax, their share of taxes rises faster than their share of income.

        CommentedSimon van Norden

        Aren't high income earners making a higher proportion of all income than they have in a generation? If so, is it bad that their proportion of all taxes rises? Isn't that what we'd expect with a non-progressive "flat" tax?

    2. CommentedProcyon Mukherjee

      Recent reports on the economy have shown almost every number in a positive state: House prices recovering, job growth, corporate profits at an all time record and the equities soaring. All this should have augured well for the economy to grow at a faster rate given the unfettered supply of money as well.

      There is one number which hardly gets tracked and Sarah Raskin has shown in her paper that the job growth as a number could be a wrong metric as higher paying jobs have been replaced by the lower paying ones.

      So with fiscal austerity now becoming a reality, we could well see the return to an extended period of sloth; the biggest sufferers are going to be the lower middle class as always.

    3. CommentedBrenda Jones

      Most parents want and worry for their children's bright future, even grown children as the world now seems to have gone crazy. What is a bright future, though? Certainly as you advocate, necessities such as food, shelter, security, healthcare, and education are part of this definition, but not all.

      What we crave most, buried under the rubble of excessive consumption, is human compassion, kindness, and love. That is, we crave genuine connection. When people have this, they are happier and they perform better, with greater efficiency. This is good economics.

      What 's stands in our way of accomplishing this is our self-interest, competitiveness, and desire to profit on the account of others. After all, how did the top 1% come to be the top 1%. It certainly wasn't just a good education. That status was attained on the backs of others, often on those poor countries you mentioned with neglected, ill-fed, and uneducated children. So, our egos are the cause of all the crises and suffering in the world.

      To change this, we need a new kind of education. We need an educational system that isn't centered on competitiveness; but rather, one that will teach us how to relate to each other in a way that will increase mutuality, reciprocity, kindness, and compassion. This will lead to harmony and balance on all levels of human existence, which for all of us will mean "no worries."

      Thank you, Mr. Johnson, for caring.


    4. CommentedLiz Banker

      The Democrats will be in a much stronger position come 2014 to legislate into law, bills that will help grow the Middle Class, help working families, and the poor. Study after study (all academic) confirms the obvious; income equality produces more stable societies. History has many examples of what happens when income becomes disparate (revolutions, social upheaval, civil unrest, Occupy Wall Street). Is that the price the 1/10th of One Percenters are willing to pay, literally and figuratively. The hypocrisy of (some) Republicans can’t be overstated; they create government policies that are counter to their supposed beliefs about possessing “family values.” They don’t want the poor to be having children, and scorn those who do, yet, want to deny Family Planning, birth control, pro-choice, etc. to those who are probably in the least advantageous position to be having children beyond their economic means. We know what this is really all about – class warfare and control – they just want the rest of us to think we’re the ones promoting it, not them. It is a sad state of affairs when both political parties are now engaged in austerity measures that are counter to the teachings they claim to pray to before each Congressional session; and have become, instead, a power grab for their self-promotion and legacy. [When “Conan O'Brien will host the 2013 White House Correspondents' Association dinner on April 27” perhaps he could also get in a few laughs, along with some pointed observations, with the President.]