DOUG HENWOOD, dhenwood at panix.com
Editor of Left Business Observer and author of the book “Wall Street,” Henwood said today: “Global markets panicked after the S&P downgrade of the U.S. Treasury (though, paradoxically, in the classic “flight to quality” reaction, investors poured billions into the very same U.S. Treasury securities that had just been downgraded). There was nothing really new in the S&P analysis – and remember, this is the company that rated toxic mortgage junk AAA just a few years ago, prompting one of its analysts to note in an internal email that they’d rate anything, even a deal ‘structured by cows.’ But it did provide a reminder that the world economy is still very sick, and the last thing we need right now are the kinds of austerity programs fashionable in Washington, London, and Frankfurt.

“We do need stimulus now, but over the long term the U.S. does have a deficit problem. It’s not an emergency, and not something we need to solve overnight. But I’ve got a simple and mostly painless fix for all that red ink. In 2000, we spent 3.7% of GDP on the military. The Pentagon didn’t have to hold bake sales. We’re now spending 5.4%. Merely going back to 2000 would save 1.7% of GDP, or $255 billion a year. If over the next decade we spent 3.7% of GDP instead of 5.4%, we’d save $3.6 trillion. That’s close to what many of the deficit hawks are aiming for. Let the Bush tax cuts expire and bump up the top rate a few points and everyone could have free child care and free college tuition!”