Now that the election is over, attention in Washington is turning toward the fiscal cliff and the supposed dangers of our large budget deficit. Economists worth listening to (such as Paul Krugman and Dean Baker) don’t think that in our current circumstances budget deficits are a problem. The United States is able to borrow at historically low interest rates, indicating that investors around the world want to buy U.S. government bonds, which would not be the case if we were in real budgetary trouble. Rather, budget deficits are being used as an excuse in yet another attempt to cut the major working- and middle-class public programs, Social Security and Medicare. The argument is that we can’t afford to sustain the modest programs that we already have, much less expand them to help out people during tough economic times. Therefore, regular working people have to “tighten their belts” to prepare for the “tough decisions” that comfortable lawmakers and their wealthy backers say are needed in order to avoid fiscal catastrophe. It sounds right, but is driven by ideology, not actual budget realities. Instead, we should have a major Keynesian stimulus, to include expansion of Social Security and Medicare benefits, in order to kick-start the economy.
However, let’s say for the sake of argument that we actually were in a situation that required cutting incomes, benefits, and programs. The argument that cuts should come from the poor, working, and middle classes, rather than from the wealthy, is exactly backwards: you should cut from those who can most afford it first, for both moral and economic reasons. It’s common sense, and just humane, to make economic cuts first from the top, only then working your way down the ladder to those at the bottom once those above them have faced their fair share of cuts. In principle, this would mean that you cut from the wealthiest person until his or her income is equal to the second wealthiest, and then from both of them until their income is equal to the third wealthiest, and so on in stepwise fashion, until you get to the very bottom. Let’s call this “Reverse Austerity.”
You can see how Reverse Austerity would work in the graphs below. Imagine that we have a simple, small company with a highly-paid CEO, well-paid mid-level managers, and less-well-paid regular workers. If cuts are needed, they must start at the top and work their way down; it is only when the situation is really dire, so that executive and manager salaries have been equalized with those of workers, that cuts to the already-low workers’ wages are justified. This model is, of course, a very simplified one, but it is meant to be in order to illustrate the general principle. In the real world, more complex variation in incomes would require more involved accounting to apply it. But this would not be beyond the capabilities of modern accountants and computers, for it would only require listing salaries in descending order and cutting from the top down, in stepwise fashion. And while my illustration depicts a business enterprise, it could just as easily describe the distribution across society as a whole.